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breakneck
Posts: 2
Registered: ‎05-31-2011
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getting a second mortgage with a high debt to income ratio

We would like to buy a second home and rent out the first one after moving into the second.  We currently pay 3000/month for the first mortgage and would need to pay about 4100/month for the second mortgage (20% down payment).  We have a combined provable income of about 11,000 month after taxes with about 7,000 of that being self-employed income.  Is there any hope for us to qualify for that second mortgage?  What can we do to make this happen?     

 

We really want to move into a somewhat larger house in a different neighborhood before putting the first house up for rent.

 

Thanks

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Justin_Toenjes
Posts: 4
Registered: ‎04-23-2011
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Re: getting a second mortgage with a high debt to income ratio

[ Edited ]

Hello Breakneck,

 

There are no restrictions to renting out your first home and purchasing another home.  You will have to qualify for both housing payments with your debt to income ratio but as long as the purchase "makes sense" and you qualify for both payments you should be fine. 

 

The first step is to talk with a couple different lenders to get thier input on the scenario and get pre-qualified for the transaction.

 

Sincerely,

 

Justin Toenjes | Redfin Phoenix Partner Lender 
jtoenjes@peoplesmortgage.com | T: 480.620.0935 | NMLS #: 167048
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LoansbyJW
Posts: 3,180
Registered: ‎04-30-2009
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Re: getting a second mortgage with a high debt to income ratio

Your debt to income ratios are 64%, not counting any consumer debt like auto payments or credit cards. Most lenders debt to income ratios top out at 50%. If you put more cash down, perhaps refinance your home into a lower rate mortgage, or even consider an ARM loan for the new purchase, your DTI could just get below 50%. That's your target number, along with at least 6 months of house payments available post closing as cash reserves.

 

It's possible if you were to move into the home you want to buy - perhaps on a 6 month lease to purchase, and after moving lease out your departure residence to be qualified. You need a renter in your home and a few rent payments made before you can count the rental income. Without a history of being a property manager shown on your tax returns, future rental income from your departure residence is not able to be used.

 

Thanks for reading,

John Wheaton NMLS 653018 | Redfin Open Book Recommended Lender
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Visitor
breakneck
Posts: 2
Registered: ‎05-31-2011
0

Re: getting a second mortgage with a high debt to income ratio

Thank you for the spot on and creative reply you are obviously very knowledgeable about real estate.  Since there really aren’t any rent-to-own homes where we would like to live, I am wondering if a variation on what you said might work.  Assuming that we don’t wait until we get the ratio below 50%, do you see any complications with renting another home for ourselves and renting out our current home to someone else to get the ratio down.  Would we only need to rent out our current home to someone else for 2-3 months for that rental income to be added to our income for the purposes of the ratio calculation?

 

After this 2-3 month (or more) period, would we be likely to qualify for a loan since our ratio would then be just below 50%?  You said future income from the rental could not be used, does that mean that it can actually not be considered for the ratio calculation.

 

Also, is it really essential to have enough in savings to pay debt payments for 6 months?

 

Thanks so much

 

 

Redfin Open Book Certified
LoansbyJW
Posts: 3,180
Registered: ‎04-30-2009
0

Re: getting a second mortgage with a high debt to income ratio

Many lenders can accept new rent - in this case 3 months worth - as viable income. You definitely need to document the rents received - a separate bank account for rent and the deposit is best - plus some evidence that you've moved out of the home. Changed addresses to your new rental address for utilities, drivers licenses, and other identification will usually work.

 

Post closing cash reserves are very important to Underwriters when reviewing all risk factors. New rent, not documented or confirmed by tax returns can be an issue. Countering that risk impression with strong post closing cash reserves is important. Lenders can use "non-liquid accounts" like 401k's for cash reserves, but only 65% or so of the value of the account.

 

Thanks for reading,

John Wheaton NMLS 653018 | Redfin Open Book Recommended Lender
See all my reviews