I would suggest looking into other methods than just letting your house go.
I have an update for you since this question was first posted. The best solution I can think of for you is to rent out your first home (if the numbers work out so you are not struggling). Then, you can do Contract for Deed aka land contract on your second home. You have the DP needed and probably the income to make it work.
The reason why I would RENT instead of just letting the home go is simple. If you just let it go into foreclosure your credit will be wrecked, and on top you have the 3 year rule for FHA when it comes to repurchase on traditional financing. This way you can simply rent out the home until you are able to sell it, and then refinance your contract for deed into traditional financing. The market is improving rapidly in Maplewood (I work there), and the timeline is shorter than you may think.
You actually won't even need the full 20% unless it gets you better terms...10% will work just fine. I have a special CD program where you can buy ANY PROPERTY off the MLS; not just what you can find off of Craigslist or other CD websites. I would love to speak with you more about it if you are still interested (I know it has been awhile).
This is the only solution I see if you want to buy now. Another option that was not brought before is the fact that you can technically go CONVENTIONAL financing just fine I think in your situation. You just can't do FHA on two homes. This is more of a clarification, because you will still run into DTI issues and probably not get the type of house you want.
If you are still interested just contact me directly through Trulia.
I am just following up with you to check how is your situation since you last posted your question.
I have several potential ideas if you still need help, I would love to discuss with you
As an experienced real estate agent, I know what it takes from start to finish helping buyers and sellers to get BEST outcome. I bring expert knowledge, valuable experience blended with the latest technology, a well-defined marketing plan, a comprehensive network, energy, enthusiasm and the excitement of a job well done
I would love to help you with your home.
Please contact me today.
My contact info is below.
Ravit Berg @ RE/MAX Results
Cell - 952.334.4179 | F - 651.460.1272
email@example.com | https://www.facebook.com/ravit.berg
That said, it's not as if you don't have alternatives. I think Christopher makes some very sound suggestions. I would try to work out a short sale deal with your lender, if possible. But, you need to know, that will impact your credit which will make it harder to obtain a mortgage on your next purchase. Sorry, but that's the way it works.
Your best bet if you are serious is to go the strategic default way and do a short sale with the lender.
I wouldn't just let the home go that will really hurt you in a lot of ways, but you can practically live in it rent free for most likley 8-12 months and use the extra money towards settling with the lender, because you will have to settle one way or the other. If you can settle for 10% of the difference between the sale of your home and what you owe that is a good deal in your type of situation without a hardship.
1 or 2 loans makes a difference, and if you have refinanced that makes a difference. Any client I choose to work with on these MUST also do a consultation with my real estate attorney and if you are smart you will too.
Hope that helps
If only you were the only one in this situation. Buy and Bail won't work. Your best bet is to team with an aggressive Realltor who can negotiate a 1) short sale or 2) a deed in lieu of foreclosure with your bank. My team works these problems every week. Maybe we can help you too.
The banks see this is a buy and bail situation.
I have been able to get this scenario approved in situations only where the buyer had to relocate for work/military orders.
Lenny is correct; your problem will be getting a new lender to approve your loan with the other mortgage active and underwater. Second homes loans are happening when you have 25% equity in the first home, other than that it's going to be tough to find financing.
You should talk to your current lender about a loan modification. It's true, few of these get approved but if you don't pursue it your chance is zero.