Financing in Philadelphia>Question Details

Ejrl123, Both Buyer and Seller in Philadelphia, PA

Obtaining a new mortgage and keeping existing properties as rentals.

Asked by Ejrl123, Philadelphia, PA Tue Jul 13, 2010

My husband and I are considering purchasing a home in Philadelphia. We individually each own properties in CO that are currently rented. We would like to keep these properties, however we are curious how that would factor in on getting a new mortgage.

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In terms of the new mortgage, the lender will look at what's called the Debt-To-Income ratio. This is your monthly debt divided by your monthly GROSS income. Depending on the mortgage company you go with, this ratio is anywhere between 45%-55%.

Now your monthly debt is consisted of any revolving credit card, installment, or auto loan that shows up at the time a company pulls your credit PLUS any monthly housing expenses. This includes taxes, insurance, and HOA (if applicable). What they would do is take your annual taxes and homeowners and divide it by 12. Because you and your husband own other properties, all of those properties' housing expenses will be needed to be included in your DTI calculation. HOWEVER since you guys get rental income, this can be used towards your income so it should offset some of those expenses.

At the end of the day, it's going to come down to if you qualify or not after somebody takes a look at your financial situation. I would recommend going to a bank or mortgage company for a pre-approval so this way you will know if you are able to purchase, and pre-approvals are free.
0 votes Thank Flag Link Mon Sep 23, 2013
Rental income from the additional real estate owned will be documented with the most recent 1-2 years Federal Income Tax Returns (IRS form 1040) and Schedule E of IRS form 1040. Depreciation, and one time non-recurring expenses listed on Schedule E of IRS form 1040 are added back to the net income.

If the net rental income is positive it will be used as qualifying income. If the net rental income is negative its is treated as a liability when calculating the total expense ratio.

The full amount of the mortgage payment for the rental property (principal, interest, taxes, and insurance) is factored into the amount of the net rental income (or loss); therefore, it is not counted as a monthly obligation.

Ed Fallon NMLS 144708
Arlington Capital Mortgage
610-308-9001
0 votes Thank Flag Link Tue Jul 13, 2010
Hi, Ejrl123.

That's a very good question you've posed. Most of my professional background was spent in the mortgage industry, but I know that lending rules change everyday now. The last I had heard, if you want to count the rent as part of your income you will need to have a minimum equity position on each property (I believe it's around 20% - 30%).

If you have the minimum equity positions, valid leases, and an acceptable debt-to-income ratio, you should be able to purchase another home without any issues. If the Philadelphia property is going to be your primary residence, it will need to have a higher value than the CO properties you own in order to qualify for lower down payment options (Conventional, FHA, etc.); otherwise, they may consider it another investment. If the Philadelphia property is going to be another investment, you will probably need about 20% down (maybe more in today's lending environment).

Please let me know if you need a local mortgage contact and I will help.

Lots of luck to you!

Best,
Tim

Timothy M. Garrity | Brown McKinney Real Estate, Co.
Real Estate Professional & Consultant

tgarrity@brownmckinney.com Email| http://www.brownmckinney.com/tim Website
215-825-2250 x 1007 Office | 267-879-2716 Mobile | 267-519-5490 Fax
0 votes Thank Flag Link Tue Jul 13, 2010
Hello EJ,

the rental proeprties will be included as income offsetting mortgage liabilities. Usually 75% of the rental income is used as there are expenses associated with having investment properties.
If one of the properties you own currently has an FHA mortgage on it the lender on the new property wants to see 25% in your previous FHA financed home if applying for new FHA financing.

The lender will want to see leases and tax returns evidencing the rental properties in Colorado otherwise you cannot use the rental income to offset the liabilites.

If you have any other questions please feel free to call me.

Regards,

Alan Openshaw
Cornerstone lending Inc
Southampton pa 18966
Office 215 953 0800
Cell267 992 7276
0 votes Thank Flag Link Tue Jul 13, 2010
Hello,

You can keep the properties with no problem. We would just need to review your tax returns for the past two years to determine how you claimed those properties and then include the loss or profit into your Debt to income ratio to determine how much you can qualify for on the purchase of your new home. As long as they have both been rented and claimed that way on 2009 tax return, you would have no probelms at all. If not then a detailed analysis of when you made them rentals would have to be done to see if there are any other conditions that would apply.

Feel free to contact me to apply for a mortgage so you can know what you will be approved for, call me at 302610-906-3109 or send an e-mail to jthomas@primeres.com.

John R. Thomas
Certified Mortgage Planner
Primary Residential Morgage
610-906-3109 PA Office
410-412-3319 MD Office
302-703-0727 DE Office
0 votes Thank Flag Link Tue Jul 13, 2010
Hello Ejrl123,

I have dealt with many instances such as this. As a matter of fact I own several properties and still I am able to obtain a Mortgage. The main point is to show the Lender income from each property and that will go towards you Earnings. I have an excellent Mortgage Lender I work with.

Please give me a call and we will discuss the details. I promise I will guide you through every step.

Alexander Shulzhenko
Realtor®
Advance Realty One
realexs@gmail.com

http://www.eRealtyFind.com
(267) 738 0886
0 votes Thank Flag Link Tue Jul 13, 2010
Yes, those mortgages woulod be counted against you as debt in your debt to income ratios. Depending on how long you have had them as rentals --You may be able to provide you past tax returns and use the rental income to off-set the debt. If you can carry all 3 mortgages and meet debt to income guidelines you won't have any issues at all. I can walk you through if you'd like me to.

610-291-1460
Maura McDonnell
0 votes Thank Flag Link Tue Jul 13, 2010
It might make getting a mortgage a bit more difficult since that debt will affect your debt-to-income ratio, but if the rent from those properties more than covers the mortgages it might make your debt-to-income ratio look better. One key to making a deal like this work is documentation - the more records you can show of your rental history for those properties the better. Also, talking to a knowledgeable mortgage professional is of utmost importance - if you need a recommendation I'd be happy to provide a few.

Cheers,
James

James Yoakum - Realtor, SFR
Brown McKinney Real Estate
1631 W. Cabot St.
Philadelphia, PA 19121
office: 215-825-2250 x.1002
cell: 267-496-7739
fax: 610-910-3046
jyoakum@brownmckinney.com
0 votes Thank Flag Link Tue Jul 13, 2010
I would recommend you talk to a lender to see how it would affect you.

I recently have had buyers in that same sort of position. They were told by the lender that as long as they were putting 20% down on the house they were buying, and they had equity in the house they were going to rent out, they would qualify for another loan.

If they did not have equity in the house they were going to rent out, and/or were not going to put 20% down on the house they were purchasing, then they would have to qualify for their loan, and include the mortgage payments on the home they were going to rent out as part of their debt ratio.
0 votes Thank Flag Link Tue Jul 13, 2010
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