Mark Thompson, Home Owner in Havre de Grace, MD

Getting out of my underwater house

Asked by Mark Thompson, Havre de Grace, MD Sun Sep 4, 2011

My wife and I got married purchased our first home (condo) in MD 5 years ago at 290k when we were 25 years old. We planned on moving out and starting a family at around the 5 year mark. The Condo's are now selling somewhere around 180k and we still owe 256k. We have excellent credit (around 750) and don't want to risk ruining it with a short sale of foreclosure. Our mortgage with taxes is around $1890 a month and our condo dues are $390 a month totaling $2280. Our household income is 135k. Our Condo can rent for roughly $1400 to $1600 a month so we would take a loss.

We are trying to build up a large savings as opposed to paying down the mortgage. We have an option to move in with my in-laws if we wanted to rent out our place and save more money. Someone mentioned to me that if we move in with my in-laws, declare that as our primary residence, show the rental income for 6 months, and put 20% down on the next mortgage, that we would be likely to get approved is this true?

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Depending on how much in consumer debt payments you have each month (car loan, student loans, credit cards, etc.), and how much of a sales price you are looking at, your $135k/year of income could potentially qualify for a purchase of a house without the use of rental income. Have you had a mortgage loan officer calculate your numbers?

However if you do need rental income to qualify, and since you are upside down, and if you are buying in the same area as your current primary residence, then you will need to claim the rental income on your tax returns and then it'll be considered a rental property and thus not need the 25-30% equity that loan programs need you to have in order to use rental income from a vacating primary residence. The longer you have the renter in there the easier time you'll have using the rental income, but there is no predefined amount of time other than having reported it on your most recent tax returns - so if you rent it out now and in early 2012 you'll have filed your 2011 tax returns with the reported rental income you should be good to use it as long as you still have a renter in there. There is also no 20% down requirement in order for that to be possible - you could purchase with FHA financing & 3.5% down or conventional financing with as little as 3% down (with 5% down you can avoid monthly mortgage insurance).
2 votes Thank Flag Link Sun Sep 4, 2011
Is it more important to keep a good credit score for now and continue to hemorrhage money for the foreseeable future? I would contact a good local real estate attorney or agent familiar with distressed properties and go over your options.
1 vote Thank Flag Link Sun Sep 4, 2011
Shane has given you some great advice. The real question is one only you can really answer, how badly do you want to move? Assuming you are willing to live with mom & dad for a while and your motivation is high, I would suggest the sooner you get started the better. Time will eventually straighten out much of the market; we just don't know how much time.
With the current environment of low rates & prices and your good income, save some money, pay off as much debt as possible and get a tenant. If all goes optimally, you'll be able to buy while prices & rates remain low and the market will move up providing you improved value in both places. No guarantees, just my wish for you.
0 votes Thank Flag Link Sun Sep 4, 2011
Mark the key will be your debt to income ratio's. You should start by meeting with a local and trusted mortgage broker who can run the numbers for you. You should also at least meet with a realtor who is well expereinced in short sales and uses a professional negotiator. They can advise you if a short sale is possible, With a large savings it is is not likely a bank would approve. A real estate attorney can guide you through the options. Good luck working things out
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0 votes Thank Flag Link Sun Sep 4, 2011
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