What Do You Do When a Client Wants to Purchase a Home - But Has Not Sold Their Other One?

By
Mortgage and Lending with Fairway Independent Mortgage NMLS #196099

I currently have a client that is purchasing a home but has another home to sell. So I thought this would be useful information to share from Mortgage Talking Points:

What do you do when a client wants to purchase a home - but has not sold their other one? If they are applying for a conventional loan, Fannie Mae requires that they either have 30 percent equity in their current residence OR 6 months cash reserves for both homes.

3 Home Buying Scenarios:

Current Home is SOLD but not CLOSED prior to purchasing other one.

Must qualify for BOTH house payments and have 6 months worth of payment reserves for BOTH homes.UNLESS there is an executed purchase contract and all finance contingencies have been cleared on the home they are selling; OR have 30 percent equity in current residence (Appraisal/BPO) PLUS 2 months worth of payment reserves for both homes.

Existing Home Converts to Second-Home Status:

Must qualify for BOTH house payments, AND Have 6 months worth of payment for BOTH homes; OR have 30 percent equity in home being converted to 2nd home (Appraisal /BPO) PLUS 2 months worth of payment reserves on BOTH homes.

Existing Home converts to Rental Property:

Must qualify for both house payments AND have 6 months cash reserves for BOTH homes. UNLESS Rental income can be used to offset monthly payment ONLY if home being converted to rental has 30% equity (Appraisal /BPO) AND home is leased AND security deposit has been verified.

The bottom line:If your client is buying a home without selling their current home, there will always need to be cash reserves after closing in the amount of 6 months PITI unless there is 30 percent equity in their current home. Then they need 2 months reserves!

 


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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Peggy James 08/23/2010 03:31 AM
  2. Lora "Leah" Stern 914-772-4528 08/23/2010 03:42 AM
Topic:
Lending / Financial
Location:
Virginia Prince William County
Tags:
relocating
home for sale
move up buyers
buying a bigger home

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Rainmaker
1,230,222
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Markita:  I don't know about you, but as a lender these situations (all 3) make me a little nervous ... on my behalf and the sellers.  More documentation, more hoops to jump through, more proof demanded.  If my clients are hoping to sell down the road ... especially in this market, I make sure they understand the risks they may be facing if the home does not sell.  Just an anxious transaction for me .. and I would imagine for all involved.

Gene

Aug 04, 2010 07:40 AM #1
Rainmaker
144,754
Markita Woods NMLS#196099
Fairway Independent Mortgage - Woodbridge, VA
Queen of Mortgages - FHA, VA, Conventional, USDA

Gene I would have to agree....a very anxious transaction for all involved. In the case of my current client we have already put together a contingency plan but of course it requires more paperwork. Thanks for stopping by.

Aug 04, 2010 08:16 AM #2
Rainmaker
217,470
Yvette Chisholm
Long & Foster Real Estate, Inc. - Rockville, MD
Associate Broker - Rockville, MD 301-758-9500

Markita, people should have these at a minimum.   So many people just ditch their "upside down" home and buy their new home.

Aug 22, 2010 11:20 PM #3
Ambassador
2,739,883
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I wish I had a chocolate brownie for every time I've had to go through these guidelines with buyers who want to buy now but are clearly not prepared.

The guidelines are far, far tougher than in the past. 

It hits relocating home buyers particularly hard when they have rented their old home, already moved to this area and are ready to buy. 

Aug 22, 2010 11:23 PM #4
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Rainmaker
144,754

Markita Woods NMLS#196099

Queen of Mortgages - FHA, VA, Conventional, USDA
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