Looking for a 2nd house in Sunnyvale,ca... I currently own (condo) in sunnyvale and want rent my property.

Asked by Larry4ny, Sunnyvale, CA Sun Apr 26, 2009

and buy a 2nd home..My home has no equity will that be a problem? I have AA credit nice savings no debt and six figure income..please let me know as I was told i need 30% equity to buy another property..thank you

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Ruth and Perry Mistry’s answer
Ruth and Per…, Agent, Los Gatos, CA
Wed Apr 18, 2012
Hi Larry4ny:

The buck stops when you do not have a rental history for 2 years on your Tax returns nor can show
2 Rental check deposits, nor show any equity in your principal residences.

Or go with a Stated loan, and be ready to pay a higher rate. Otherwise, wait till the market
for lending improves.

Check this out:

Banks do not want to lend you money to move up, while many have chosen to walk away from
their first home after, buying their second home. This is called Strategic Default, and this is what
the Banks and Government is concerned of.

Any questions call me at http://www.trulia.com/blog/perry_mistry/

Thanks for reading
0 votes
Robert Lei, Agent, Cupertino, CA
Mon Apr 16, 2012
Hi Larry,
It depends on WHICH home you plan to rent and which you plan to live in yourself.

You are going to have a tough time if you are telling the lender the home you intend to buy will become your new primary and you will try to rent your current home. One of my clients had best case scenario in all those categories you mentioned (credit, savings, income, equity, etc.) and still they were not allowed to count potential rental income by converting their current primary into a rental.

An easier way to go is tell the lender you will rent out the home you intend to buy while your current primary home will remain your primary home. My other client had no problem doing it this way. If you do it this way, the lender won't even require a rental agreement. They'll just do a rental survey which estimates what your potential rental monthly income would be.
0 votes
Bill Mccord, Agent, San Jose, CA
Sun Apr 26, 2009
You need to consult a good FHA Mortgage Broker. What you are tring to do is possible with 3.5% down payment but, as already advised, you will need to qualify with both payments minus 75% of an existing rental agreement on your current property.
This is possible but understand that the new Lender will need to be convinced you are not planning to just buy the new property then let the other one go into foreclosure .
Good luck
0 votes
Micki O'Toole, Other Pro, Corona, CA
Sun Apr 26, 2009
HI Larry,
Michael is correct as it is also my understanding that you need to have 30% equity in your current residence in order to include the rental income (75%) for qualifying purposes. Otherwise you will have to qualify with both payments. if you make a six figure income with no other debt, qualifying with both mortgages shouldn't be a problem.
The reason this went into effect was due to people doing a "buy and bail", where they would purchase another home (often similar or better than their current home but much cheaper) and once they closed on the new one they would let the bank foreclose on the old one. I recommend that you check with your preferred lender as guidelines do change daily,
0 votes
Mark Burns, , Cupertino, CA
Sun Apr 26, 2009
You will need to have a rental agreement (tenant ready to move in) in place. The lender for your new home will count the negative cash flow from the condo as debt when calculating your ratios to buy the new home. If you don't have a renter ready, the entire mortgage, taxes, and HOA dues will count against you as debt and possibly ruin any qualification despite having great income and credit.

It is not necessary to have 30% down payment to buy a new principal residence. If your credit is excellent, income is consistent and sufficient to handle the new mortgage, taxes, and insurance; then you may be able to purchase a new home to move into with as little as 3% down on an FHA loan.

There are always limitations on financing. FHA loans can only go up to $729,750 That essentially puts you at a $750K limit with the lowest down payment. If you put down $70K then you would be able to do FHA and purchase at $800K. FHA loans have expensive mortgage insurance (up to 1.75% of the amount of the loan - in this case almost $13,000). But they offer the opportunity to buy with less than 20% down. You do not necessarily have to pay that yourself. Depending on how negotiations go on your new purchase, you may be able to get the seller to give you credits for closing costs, fees, points, etc. If you get a credit for points and fees from the seller, there is still a tax benefit for you in writing those costs off as part of your purchase.

You need a very good lender (I know one) and a very good CPA (I know one or two) to handle the complexity of what you are doing. Bad lenders and trying to do your own taxes at this point can cost your dearly down the road.

There are also loans available with 15% down that would be conventional (not FHA) and carry cheaper mortgage insurance.

You have lots of options.
Web Reference:  http://www.markburns.com
0 votes
Michael Robe…, Agent, San Ramon, CA
Sun Apr 26, 2009
Hi Larry, It is my understanding that a primary home ownere who wants to purcase a new primary home and rent their current home does need to have 30% equity. Then you must understand the lenders will ONLY consider the rental income at 75%. ( ($1000 rent will only be able to be considered for repaymenat at $750 per month).

0 votes
Marcy Moyer, Agent, Palo Alto, CA
Sun Apr 26, 2009
the amount od downpayment required will depend on how much your home costs and what your loan is. Down payment requirements increase with loans over $417,000. You can call a lender and get the parameters, which change daily. The major lenders right now are Met Life Home Loans,Bank of America, and Wells Fargo. Chase has just opened up in California after buying Washington Mutual so they are probably lending also.
Web Reference:  http://www.marcymoyer.com
0 votes
The Hagley G…, Agent, Pleasanton, CA
Sun Apr 26, 2009
your best bet is to speak to a lender to find out what programs are available to you. Give Linda Grassi a call at 925-824-4848.
Web Reference:  http://www.cindihagley.com
0 votes
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