4/29/2010

Buying Without Selling? Equity Will be a Player.


If you're thinking of buying a new home and renting out your current home, it will pay to plan in advance. By asking a few questions, you will start to shed light on an important subject.
 For instance, do you know your current rental market and what a reasonable rent could be expected for your property? By checking local classified ads and online rental sources, plus speaking with other local owners who are landlords, you should be able to find out fairly easily. Will that amount cover your current payment, plus property taxes, plus HOA dues, if a condo? If it doesn't you need to know what your negative cash flow will be (the amount extra every month that you will have to contribute out of your income) every month. Then, by speaking with a mortgage professional about pre-approval for a new home purchase, after a discussion about your income, debts and expenses, plus that possible negative cash flow, you will soon find out if this plan will work. And, there's another wrinkle: Since the subprime market debacle, lenders have increasingly formulated tighter lending guidelines, and one of them is that a current property needs to have a good 30% equity in it to meet a more recent lender requirement, and without that equity, there will will be no loan approval on that basis alone for a new purchase. Unless the borrower can qualify for a new purchase based on his complete monthly expenses, excluding tenant contributions, plus the new mortgage. This requirement came about to eliminate loans to borrowers who, due to falling home prices and a potential short sale, walked away from their former residences after closing escrow on a new home.

This means that if you're hoping to obtain a loan modification, but are not sure about how long you'll be living there (when do we ever know the future for sure?), it will pay to think in advance about your loan-to-value. The reality is, many borrowers do not meet that 30% standard, (see this blog in Seattle) and can't otherwise qualify, and thus are forced into thinking about a short sale (or even other options, depending on their circumstances), which in turn impacts how soon you may be able to borrow again in the future. FNMA actually revised their standards a few days ago, loosening the timeline to 2 years to buy after a short sale for borrowers with 20% down, and longer for those with a lower down payment. This is an improvement, and for those who can revive their credit scores and save money in that time, it will mean a good recovery.

For an estimate for your property, contact a Realtor to provide you with a comparable market evaluation at no obligation. It would also be a great time to discuss all options which could be open to you, find out future ramifications. This is the time to find out. Find current properties in your area at the MLS search at www.juliahuntsman.com, as well as other resource information. Or contact me for recent "sold" properties to establish a value for your property. To keep up with the local area, also see my page at http://www.facebook.com/LongBeachHomesandCondos .

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