Financing in 85298>Question Details

Funindasun, Home Buyer in Queen Creek, AZ

FHA offset carry of rental

Asked by Funindasun, Queen Creek, AZ Sat Jan 12, 2013

FHA Underwriting question--I am purchasing property, want to use FHA and wish to keep current prim res. and lease it since it would create pos cash flow. Current res.does not have equity. I have good W-2 income, 25 yrs on job, but not sure if enough income. to meet dti ratio of 29/41% if I have to calculate both mortgage pmts. Do reserves help? What else can I do to offset my current mortgage pmt. ?

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Funindasun - not sure where you read about 29/41% ratios. On a manual underwrite (the most strict type of underwriting review for an FHA loan) ratios are expected to be no more than 31% for the housing portion & 43% for the total debt ratio. However with the use of automated underwriting (which every loan officer utilizes first) housing ratios up to 44.99% & total debt ratios up to 56.99% can qualify with some compensating factors - i.e. decent credit & usually 2 months of PITI reserves.

Your loan officer would run FHA TOTAL (FHA's automated underwriting) with your numbers and if an "Approve/Eligible" response comes back then that means those debt ratios can qualify. Some lenders have "overlay" guidelines on top of those debt ratios though, which would limit the debt ratio that they would approve, so even though FHA TOTAL may approve a 56.99% total debt ratio the overlay guidelines may prohibit anything higher than 50% or 55%, etc. Best plan of attack is to go over your income with a loan officer so your debt to income ratios can be calculated without the rental income.

The guidelines that Bill posted are what all FHA lenders need to follow when they are trying to count rental income from your departing residence.

Shane Milne | Lending in all 50 states | NMLS #81195
1 vote Thank Flag Link Sun Jan 13, 2013
Hi Fun In Da Sun:

Maybe another lender knows of a trick I do not, but FHA is pretty clear on this. Due to others before you using this situation to "buy and bail", which the FHA and all other lenders consider an "unscrupulous practice", the ONLY times when you can use rental income from a vacated primary residence turned into a rental is if you are being relocated or HAVE AT LEAST 25% EQUITY IN THE VACATED PROPERTY. Since others are indicating otherwise, I have provided portions of the specific MORTGAGEE LETTER below (edited for brevity):

September 19, 2008
MORTGAGEE LETTER 2008-25
Existing Homes to Rentals—Underwriting Instructions

Through this Mortgagee Letter, the FHA takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHA’s ability to help new homeowners.

Consequently, beginning with case number assignments on or after this date and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter.

Exceptions:

•Relocations:
•Sufficient Equity in Vacated Property: The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.

The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).

Sorry. Are there any lenders out there which have seen real-life examples overcome this Mortgagee Letter?

Bill Parker, Loan Officer
AZ Lic# 09011570
NMLS #223607
CPA--Licensed, no longer practicing

GenCor Mortgage Inc.
15730 N. 83rd Way, Suite 103
Scottsdale, AZ 85260
(O) 480-525-8496, EXT 743; (M) 602-565-3646; (F) 480-436-5226
EM: BParker@GenCorMortgage.com
Website: http://www.GenCorMortgage.com
LinkedIn: http://www.linkedin.com/in/billparkercpa

MISSION STATEMENT: To create an unbelievably enjoyable experience for my clients, while guiding them through the most important financial transactions of their personal lives. My clients know me as their Mortgage Lender for Life. I truly appreciate your referrals.

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0 votes Thank Flag Link Sun Jan 13, 2013
Hi Bill--I don't see where "others are indicating otherwise" ---a few are looking at ratios to see if qualifying for both payments is a possibility--using reserves and very high scores to allow ratios as high as 44.99/56.99% (assuming no overlays)
Flag Sun Jan 13, 2013
Hi. Not enough info here, however you certainly have pluses. By reserves, I assume you mean investment accounts. Talk to an FHA lender about your specific info that you do not want to share in this open forum format.
0 votes Thank Flag Link Sat Jan 12, 2013
We should be able to push the 41 on the back end and some on the front ratio as well. I have done a number of these with buyers and it works well.

Should talk a little more and then can advise which lender would be best.

We can also offset a percentage of the current home with rental income
0 votes Thank Flag Link Sat Jan 12, 2013
You should speak with a lender about this.
0 votes Thank Flag Link Sat Jan 12, 2013
Call a few lenders and give them all the necessary infirmation.
0 votes Thank Flag Link Sat Jan 12, 2013
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