I want to rent out my current home, has conventional loan. I have more 50% equity. My loan broker states, I can only buy another as rental w 25%dwn

Asked by Gloria, Temecula, CA Tue Oct 18, 2011

My new home will be the owner occupied home. I do not want to pay the 4.25% or more interest rate. I prefer a 7-10 year arm rate

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Gregorio Den…, , San Diego, CA
Wed Oct 19, 2011
You don't need 20-25% down, you just need a good loan officer. As Shane stated, if it's truly going to be your primary residence then this should not be a problem using owner occupied financing which includes conventional with 5% down or FHA with 3.5% down. There are also several options for no mortgage insurance with less than 20% down.

Also, you could indeed get credit for a portion of your rental income with a lease agreement in place since your LTV is 50% in the property you are converting to a rental.
Web Reference:  http://WeFixRates.Com
1 vote
Deborah Garv…, Mortgage Broker Or Lender, San Diego, CA
Wed Oct 19, 2011
Gloria, Just gave Shane a Thumbs Up for his answer...just did a similar situation for my son's new property in Murrieta. Previous residence is less than three miles from the new home. As Shane stated, it really is all about explaining your situation to the underwriter...this involves more that copies of your income and asset statements.

The only thing I would add is that you will need to qualify for both mortgage payement (with no credit for rent) and you will need to have six months of reserves for the rental mortgage payment. I would be happy to explain how I put a file such as yours' together, if desired.
1 vote
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Tue Oct 18, 2011
Hi Gloria, if the home you are buying is better for you in some way, and it'd be believable that it'd be your primary residence, then it's possible to do what you are looking to do. Better doesn't mean bigger, it could mean closer to work or even smaller such as if you are selling your larger home & downsizing into a smaller home because kids have left, moving from a condo to a house, etc. Many loan officers think that if you are buying a home in the same commuting area as a home you are currently living in that underwriters will automatically consider it a rental property, but really it all depends on the logistics of the transaction.

Perhaps your loan officer attempted to do a similar transaction in the past and it didn't turn out well/underwriter required it to be done as non-owner occupied, and they are warning you that with them it should be done as non-owner occupied in order to avoid having things changed in the middle of your transaction... so they are looking out for your interests if you decide to do the purchase with them.

If it truly will be your primary residence then there should be a way to get it done as one, if you'd like a second opinion on the details of your situation I'd be happy to discuss.
1 vote
Bob Dalsimer, Agent, Irvine, CA
Tue Oct 18, 2011
Gloria -

The lender will be looking for two things when addressing a departure residence:

1) Does it make sense that you would be truly moving to the new home. For example, if you live in a 3,000 square foot home in Yorba Linda worth $800,000 and are purchasing a 2BR condo for $200,000, than the underwriter will question if you are really going to live there. If the opposite is true, then clearly there would be no questions -

2) Second items is Buy and Bail - this is when a homeowner will rent their current home and have less than 25-30% equity. In this case the lender will not use the rental income as an offset to the current housing expense. If the Buyer qualifies for both homes, than this wont be an issue.

So, depending on your credit, income and savings, you should be able to buy an owner occupied home with no money down for a VA loan, 3.5% for a FHA or 20% or more to avoid mortgage insurance on a conventional loan. So, not sure what the issue is, yet, seems like it should be pretty straightforward.

The only other issue could be if your lender was qualifying you and you needed to put 25% down to meet the income and debt ratios..

if you want additional information, feel free to contact me at bob@inspiragroup.com

Web Reference:  http://www.inspiragroup.com
1 vote
Barbara Pott…, , Yorba Linda, CA
Sat Feb 2, 2013
You may rent out your current home and buy the new one as owner occupied. As far as counting the rental income to assist in the qualifying, the guidelines are:

Rental income from the borrower’s current principal residence
•If the net rental income relates to the borrower’s current principal residence which is being retained as an investment property, up to 75% of the rental income may be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property, as proven by the value from an appraisal or AVM, minus the outstanding liens. The rental income must be documented with:
â—¦A copy of a fully executed lease agreement,
â—¦The tenant on the lease may not be a family member, an individual with an established relationship with those involved in the transaction, or an interested party to the transaction,
◦A copy of the receipt for a security deposit from the tenant and for the deposit into the borrower’s account must be obtained, and
â—¦At the discretion of the underwriter, a fair market rent letter may also be required.

•If the borrower is retaining their current principal residence as an investment property, but does not have at least 30% documented equity in the property as outlined above, the rental income may not be used to offset the payment. In other words, you must be able to qualify for the payment on the new property and the payment on the current property without any offsetting rental income.

If you would like to contact me for a pre-qualfication you can reach me at:

Caliber Funding
714 974-5618
0 votes
Robert Chome…, , San Diego, CA
Wed Oct 19, 2011
You can buy the next home owner occupied, it just has to make sense.
0 votes
Rudi Hofmann, Mortgage Broker Or Lender, El Segundo, CA
Wed Oct 19, 2011
Gloria, only 30% equity in your departing residence is required for you to receive 75% of the rental income to be credited to your qualifying income, if that is a concern. If you don't want to pay mortgage insurance you will need 20% down on a FannieMae/Freddie Mac backed loan. Fixed terms and ARMS are available.

Happy funding, Rudi
Web Reference:  http://www.umboc.com
0 votes
Bob Jakowini…, Agent, Livonia, MI
Wed Oct 19, 2011
Gloria, sounds like you need to contact a couple of good loan officers. They will give you a complete picture of what you can and can't do. Maybe your current loan broker can't do what some others can right now
0 votes
Dp2, , Virginia
Wed Oct 19, 2011
First, the requirement to put 20% to 25% down only applies for conventional financing. It's entirely possible for one to purchase income properties with less down--especially when doing deals with creative financing. And that's certainly not the only way.

Second, since you have 50% equity in your residence, you might also want to look into using a portion of it as cross-collateral, and that might lower your down-payment amount.
0 votes
Ingrid Ski R…, Agent, Mission Viejo, CA
Wed Oct 19, 2011
HI Gloria,

When I counselor with new clients, I reccommend they check for a loan several places.
1- your own bank and credit unions
2- a direct lender being BofA, Wells Fargo etc
3- a mortgage broker which has a wide variety of loans than a direct bank.
This is before you give them your credit information, tax returns, etc.
The mortgage brokers depending which one you use has many packages of loans and you both decide which would be best for you. This is what you have to do first before looking at homes to buy. You want to know what you qualify for and what payment that would be and then you decide how much of a house you are comfortable in buying..
I would like to interview for the job in working with you in finding your home in Yorba LInda.. This is a great area. I have lived and worked in this city along with Anaheim HIlls, Placentia and Brea..

Talk to you soon,

Ingrid Ski Realtor
949-874-0432 Cell & Text
0 votes
Emily Knell, Agent, Huntington Beach, CA
Tue Oct 18, 2011
Send an email to Lisa.Banhagel@BankofAmerica.com or call her at 949-500-5780 & she can help you. Unless you have some terrible terrible horrible terrible credit, I don't see why you need to put 25% down on a new home that will be your primary residence.

562-430-3053 c
Realtor Since 1996
Main Street Realtors
0 votes
Marlene Pres…, Agent, Anaheim, CA
Tue Oct 18, 2011
Perhaps I am missing something here ... as I understand it, you now live in Temecula and you want to buy a new personal residence in Yorba Linda which you will occupy. Should be nothing wrong with that ... people do it all the time. You are relocating to a new area. You don't want to sell your current home in a down market. You have equity in your current home and may be able to rent it at a profit. Perhaps you should talk to a different lender.

Of course, there may be qualification problems. Most lenders require a genuine rental contract on the current residence and only a percentage of the rent is counted for qualification purposes as a vacancy factor must be considered. If your income and credit is sufficient to qualify for both houses ... there is no problem at all. But, It might be a bit more involved if the lender needs to consider the rental value.

If you are going to live in this new home on a permanent basis ... why would you not want to take advantage of
fantastically low fixed rates? 4.25% is a wonderful rate!!! Of course I don't know your situation and motivations ... but I do not understand why you would opt for an ARM that will ultimately wind up much higher?

I have lived in Yorba Linda since 1972 ... would love to help you find your new dream home!

Marlene Prescott
Prudential CA Realty
714 283-6643
0 votes
Mike McGinn, , Yorba Linda, CA
Tue Oct 18, 2011
Yes, it is generally true that you need a 20-25% down payment on a rental property. However, in your situation you can usually buy your new home as a primary residence and not be required to put 20-25% down.

Let me know if I can be of any help in your property search. I can also refer you to a loan broker if you need.

Thanks and good luck.
0 votes
Jerry Reed, Agent, Yorba Linda, CA
Tue Oct 18, 2011

Just say your new statement. I can't encourage you enough to talk to more than one lender. As I tell my clients if you were going to buy a new car you should check with more that one dealer.

0 votes
Ryan Smith, Agent, Murrieta, CA
Tue Oct 18, 2011
All good answers below, you would definitely need a good reason to move and use the new home as a owner occupied residence. Maybe a job transfer? Medical reasons? Bigger, better home? There can be many reasons but you need the proof to get the under writter on your new loan that you will be living there.

good Luck!
Web Reference:  http://www.ajsocalteam.com
0 votes
Jerry Reed, Agent, Yorba Linda, CA
Tue Oct 18, 2011

I am not a lender but I use a lender that I feel is the best in this area. He has more than 25 years experience as a mortgage person. I think that your thinking is spot on. Now is a good time to buy investment property. I have lived here in Yorba Linda for 38 years and still do. Raised my sons here. It is a wonderful area as you know. I could give you my opinion of the answer to your question but you would be better served by a professional in the lending business. Should you wish to speak with me, and I hope you do please email me at jerryreed@firstteam.com.

0 votes
Derek Gray, Agent, Aliso Viejo, CA
Tue Oct 18, 2011
Hi Gloria,
If you'd like help with your purchase, give me a call. 949.464.7296. If you'd like a tenant, let me know what you have.
0 votes
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