In our San Diego real estate practice, we commonly work with clients who, because of life transitions, need to move from one type of home to another
Commonly, a young family outgrows their home and needs to move to something larger. In the past, we put their home on the market (if they wished to sell) or offered it as a lease, if it they could afford to do so. Concurrently, we would begin looking for a new home and if the perfect one were found, an offer would be put forth with a contingency clause for sale/closing or lease of our buyer’s home.
With the current lending landscape, though, things have changed for San Diego home buyers.
These days, when a homeowner decides to buy a new one, there are 3 basic options for the residence: Sell it, keep it, or rent it.
Unfortunately, no matter which path is chosen, move-up home buyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in past years.
Mortgage guidelines are now dramatically tougher for borrowers carrying more than one mortgage.
Among the changes buyers now face:
Selling the primary residence
If you plan to close on your new home prior to the closing of your existing home — even if it’s only by a day — both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of home buyers.
Converting your residence to a second home
If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth of mortgage payments + taxes + insurance in reserves for the current home and new home combined.
Converting your residence to an investment property
If your current home has less than 30 percent equity in it, any rental income derived from a tenant is disallowed on your mortgage application for the new home. You must still count the mortgage payment + taxes + insurance as a monthly debt.
In other words, being a move-up buyer isn’t as simple as it used to be. New lending rules make buying a new home an exercise in timing and financial planning. And the rules are expected to get tougher, too.
Therefore, if you expect to be a move-up buyer in the next 12 months, it would be wise to plan ahead and calculate your finances carefully.
Understanding the new mortgage landscape and how it influences your upcoming home purchase may be the difference between getting approved for a home loan–or being declined.
Unfortunately, no matter which path they choose, move-up home buyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past.