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Underwater w/ 1st home, credit score of 740, thinking of buying 2nd home?

We are in quite a dilemma here. Our current home in socal is 200k underwater. Family has grown and we need a larger home. We plan to buy another home as primary residence, in pretty much same community we live in as the schools are phenomenal. We will be able to manage 48% DTI without considering rent on current home. Scores are 740+, excellent credit. We keep getting mixed opinions as to we'd be able to get a loan or lenders will look away due to potential buy & bail situation. I have done calculation and I can show that keeping our current home and renting it out nets us small amount at the end of the year when we do taxes. Having said that, what are our odds to be able to secure a mortgage for our second home? We can put as much as 20% down. by marciaswords from Sacramento, California. Jun 20th 2011 Reply

Gregorio Denny (GVDenny)
#256 ranked lender in California - 380 contributions

It can be done if you can qualify for both payments. When you came up with 48% DTI, did you include principal, interest, tax and insurance on both properties? (Including mortgage insurance) Not just principal and interest. You will also require reserves and an extremely good reason behind your move and great documentation. Make sure you have a great loan officer working with you on this.

Jun 20th 2011
Jeff Hutchison (jhutchison)
#14 ranked lender in Iowa - 40 contributions

Hi Marcias, unfortunately an underwriter will not approve your new purchase as a primary residence. They will definitely be checking valuation models for your current residence's projected value. When they see you are 200K under water red flags will come up. Rental income would not be counted as effective income for qualifying purposes in this case with out a 2 year history of managing rental properties. You would have to sell your current residence and most likely close escrow before you could close escrow on the home you wish to purchase as a primary residence. Since you are underwater I am assuming this won't be the case. The new home could potentially be treated as an investment property and would require a 20% down payment, and at a minimum 6 months worth of the mortgage payment in cash reserves after closing. Given the down payment requirement, reserve requirements, and the debt to income ratios you mentioned the file will most likely not be approved for financing. Sorry to break the bad news but hope this helps give some guidence from an underwriting perspective.

Jun 21st 2011
Matt Baker NMLS#190779 (MattBaker)
#32 ranked lender in Arizona - 75 contributions

You could do the loan as a primary residence. However, the Motivation Letter explaining the move and why it is necessary. Along with some back up about renting the house would help. You would need to qualify for both payments and the loan is absolutely possible. It needs to make sense, and your remarks lead me to beleive that they are. We can discuss in more detail. Matt Baker The Baker Team at Cobalt Mortgage (480) 747-6116

Jun 23rd 2011
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