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!