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Do I Have to Sell in Order to Buy? - Common Real Estate Question

By Melissa Zavala

Real Estate Broker/Owner with Broadpoint Properties Cal BRE #01324959

July 17, 2011 04:27 AM

Escondido Home Seller This question reminds me of the Nick Lowe song “Cruel to Be Kind” (which I believe was originally a quote from Shakespeare’s Hamlet). But, with such wonderful real estate prices right now, lots of homeowners are wondering if they have to sell their existing home in order to buy another property.

One San Diego County homeowner asks, “I have a $120,000 mortgage balance and I want to purchase a new home. Do I have to sell my current property to qualify for real estate loan?”

That is a great question and the answer is twofold. The first issue to consider is whether the homeowner wants to keep the existing home. If the homeowner wants to keep the existing home, will the home be a rental? Will the new purchase be a rental?

The second issue to consider is whether the homeowner has enough money to make a down payment on another home. If you have enough savings to make a down payment on a new home (and even if you do not), it is important to speak with a mortgage lender or loan officer who can determine whether you will qualify to purchase another home.

Lenders have lots of mortgage programs at their disposal and can make recommendations based on the prospective borrower’s credit score and income level among other things.

So, if you are considering the purchase of another home, the best course of action would be to speak with a mortgage lender. Your local Realtor® can provide you with a list of qualified mortgage lenders who provide reputable and professional service. If you are located in San Diego or Riverside County and would like the name of a qualified mortgage lender, just let me know.

Here’s More Real Estate Stuff for Inquiring Minds:

How to Buy an REO (a Bank-Owned Home)

Short Sale with no Hardship – Can it Happen?

Banks Paying Sellers to Get Out

Photo: flickr creative commons by Mihai Bojin

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Ralph Gorgoglione

Metro Life Homes - Palm Springs, CA

California and Hawaii Real Estate (310) 497-9407

I think most lenders will allow 75% of the rental income towards the qualification process, yet 100% of the mortgage is tagged as debt.

So it's not easy.

Jul 17, 2011 04:40 AM

Wayne Johnson

Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX

San Antonio REALTOR, San Antonio Homes For Sale

Melissa-This, like so many questions in real estate, is answered with, "it just depends." Each situation must be evaluated on its own merits. Your answer in this case regarding the lender or loan officer is where this is best answered if a loan is needed. It is nice that many still see the opportunities available in real estate.

Jul 17, 2011 04:42 AM

Sheldon Neal

Bergen County, NJ - RE/MAX Real Estate Limited - Maywood, NJ

That British Agent Bergen County NJ

Always a tricky thought process to consider keeping two mortgages in this climate ! ... but it's not impossible, so speaking with a reliable mortgge professional is always the first step ! .... and if worked out carefully, there are some great deals to be had as second homes right now !
Cheers Melissa !

Jul 17, 2011 04:45 AM

Michelle Gibson

Hansen Real Estate Group Inc. - Wellington, FL

REALTOR

Melissa - I totally agree the first step is to contact a lender, then this is a long list of things to consider if you can get approved without selling or you can't. Either way it's important to meet with a real estate agent to discuss all the options. I can't tell you the last time I wrote an offer contingent on the sale of another property, it had to be in 2004, maybe 2005.

Jul 17, 2011 07:27 AM

Barb Van Stensel

Chicago, IL

Good question to bring forth for those cnsidering buying a second home when theys till owe on their first home. It always is good to get them to a professional Loan Officer or Banker to share with them their options, if they have them. It just depends.

Jul 17, 2011 07:32 AM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Melissa

The answer to a seemingly simple question is pretty complex, but starts with a frank talk with a knowledgeable and forthright mortage progressional who will not lead you astray.

The issue of holding onto a home and using the rental income is not simple anymore - seems you need to have at least 30% equity in the home in order to do that.

Jeff

Jul 17, 2011 08:48 AM

Craig Rutman

Helping people in transition - Cary, NC

Raleigh, Cary, Apex area Realtor

While we can always run some of the numbers, it's best to let the mortgage professional give their advice in these situations.

Jul 17, 2011 09:29 AM

Donne Knudsen

Los Angeles & Ventura Counties in CA - Simi Valley, CA

CalState Realty Services

Melissa - Typically, any homeowner wanting to purchase a home without selling the one they currently own means that they may have to qualify for both mortgages. If they have at least 30% equity in the current property, they can use 75% of the rental income for qualifying purposes. They will also need a rental agreement and a security deposit. Furthermore, many lenders are now requiring that the homeowner has a history of managing rental properties.

If the homeowner does not have at least 30% equity, they will not be able to use rental income for qualifying purposes and they will need to qualify for both mortgages. These are traditional program guidelines so some homeowners may be able to find some portfolio lenders or hard money lenders who do not need to maintain traditional program guidelines but that benefit doesn't come cheap. They will pay for that luxury.

Jul 17, 2011 06:01 PM

Nevin Williams

Fairway Independent Mortgage Corporation - Cary, NC

Senior Mortgage Advisor

Melissa - Donne is correct. In addition to this Flagstar is the only lender I know of that uses 75% of rents regardless. Most other lenders will calculate income or losses from 2 years schedule E from tax returns and include those when qualifying borrowers. Line item #3 minus # 19 then add back in the depreciation along with a few other items to come up with the allowable income or with the final "loss" to be included to calculate DTI. There are variances as to what can be used so it is important to know which lender uses which method. Furthermore have the buyer prepare to prove their equity in the home they are going to rent. Many underwriters will condition for a full appraisal to prove 30% equity.

Jul 24, 2011 05:42 AM

Do I Have to Sell in Order to Buy? - Common Real Estate Question

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