Posted on: 17th Mar, 2009 09:48 am
Purchase new home, keeping condo as rental, but wont qualify for FHA - apt is not rented out yet...My wife and I currently own a condo in Back Bay, Boston (right next to the Cheers bar actually). We purchased the unit 2 years and 1 month ago for $346k. We've refinanced once and added a HEL to pay off other old debts of $42,500. Total mortgage debt is therefore about $388k. We have a 6% 30 year fixed first mortgage, and the HEL is at 6.25%. Non-resident real estate taxes are $4500/year and the condo fee is $293 per month. Our condo would (easily) rent for $2000/month, which by my calculations means we are less than a couple of hundred dollars away from break-even after tax savings, excluding the HEL (I don't include that in the calculation, because it wasn't related to the house - old debts). Our ZIP code is one of very few that has actually gone up the last (few) year(s) - we have received 3 independent appraisals the last 1.5 years, at $415k, $420k, and $419k. The city assessed it at $415k.
The house we're looking to purchase is in Winchester, MA. This town has also not been hit hard with falling house prices. (I know this seems strange to most people around the country, but feel free to check our current zip code 02116 or Winchester 01890). It was sold in 2005 for $510k. It's been on the market since July 2008, starting at $569k, then $529k, then now $489k. It's a smaller house surrounded by old Victorian houses ranging from $700k to $2M. It's in one of the best school districts in Massachusetts, a 15 minute drive from downtown Boston, and 1 minute walk from the Fells Reservation, a large forest area we enjoy every weekend. This is one of the closest properties to the reservation, which is rather unique. It went under agreement, but the buyers pulled out last minute, putting it back on the market.
I would love to keep our existing condo. We've put some work into it, and it's in a prime downtown Boston location. However, and sorry for the long introduction, this is where the problem comes in. We make 150k/yr combined, have average credit scores of 740-750. We only have 3% down payment for the new house, so we're looking at doing an FHA. However, unless we move out of our existing place and rent it out for a couple of months, the bank does not want to add the rental to our income. We're prepared to put it on the market, get a lease, get first and last month rent, but not move out only to live away for it for a couple of months. Plus, what if we then, for some other reason, don't get the mortgage. Seems too risky to put an offer on the new house with this situation as well.
The only options I can come up with are:
1) Selling our condo (probably takes too long, and won't get a good price currently, plus have to give a cut to the broker)
2) Moving out of our existing place, renting it out, place an offer with some sort of a contingency in it?
3) Here's where you come in - any other suggestions? Banks? Products? Ideas?
This is the kind of house and location we've been looking for, and want to buy within the next few years. Even though it's a stretch right now, we have stable jobs and would love to take advantage of the low market.
The house we're looking to purchase is in Winchester, MA. This town has also not been hit hard with falling house prices. (I know this seems strange to most people around the country, but feel free to check our current zip code 02116 or Winchester 01890). It was sold in 2005 for $510k. It's been on the market since July 2008, starting at $569k, then $529k, then now $489k. It's a smaller house surrounded by old Victorian houses ranging from $700k to $2M. It's in one of the best school districts in Massachusetts, a 15 minute drive from downtown Boston, and 1 minute walk from the Fells Reservation, a large forest area we enjoy every weekend. This is one of the closest properties to the reservation, which is rather unique. It went under agreement, but the buyers pulled out last minute, putting it back on the market.
I would love to keep our existing condo. We've put some work into it, and it's in a prime downtown Boston location. However, and sorry for the long introduction, this is where the problem comes in. We make 150k/yr combined, have average credit scores of 740-750. We only have 3% down payment for the new house, so we're looking at doing an FHA. However, unless we move out of our existing place and rent it out for a couple of months, the bank does not want to add the rental to our income. We're prepared to put it on the market, get a lease, get first and last month rent, but not move out only to live away for it for a couple of months. Plus, what if we then, for some other reason, don't get the mortgage. Seems too risky to put an offer on the new house with this situation as well.
The only options I can come up with are:
1) Selling our condo (probably takes too long, and won't get a good price currently, plus have to give a cut to the broker)
2) Moving out of our existing place, renting it out, place an offer with some sort of a contingency in it?
3) Here's where you come in - any other suggestions? Banks? Products? Ideas?
This is the kind of house and location we've been looking for, and want to buy within the next few years. Even though it's a stretch right now, we have stable jobs and would love to take advantage of the low market.
bjorn, you are up against guidelines that won't change any time soon. in order for any lender to consider the rental income from your condo, you'd have to demonstrate that you have 30% equity in that property, which you clearly do not.
as a consequence, you'd have to qualify for this new purchase while carrying the entire debt load for the condo as well. you didn't specify your monthly payments for that property, but it would seem that the overall debt (that property, the new home plus any other obligations) would put you on the high side of qualifying.
if your credit scores are verifiable at the levels you've noted, then you can probably qualify with an fha loan at a grand total debt level of, say, 55%. in other words, when you add up all your monthly obligations - new home, condo, any loans and/or credit cards; that total should not exceed 55% of your gross monthly income. if you meet that level or better (less than 55%), then i'd say you've got a reasonable shot at being approved for the new purchase.
as a consequence, you'd have to qualify for this new purchase while carrying the entire debt load for the condo as well. you didn't specify your monthly payments for that property, but it would seem that the overall debt (that property, the new home plus any other obligations) would put you on the high side of qualifying.
if your credit scores are verifiable at the levels you've noted, then you can probably qualify with an fha loan at a grand total debt level of, say, 55%. in other words, when you add up all your monthly obligations - new home, condo, any loans and/or credit cards; that total should not exceed 55% of your gross monthly income. if you meet that level or better (less than 55%), then i'd say you've got a reasonable shot at being approved for the new purchase.