Can you buy a new home if you owe more than market value on your current home?
Before I answer this question, I want to tell everyone that I am dedicating my September blog posts to money, mortgages and financing options.
After 20+ years in the business, I have never seen so much chaos in the mortgage system - under appraisals, botched loans, inept lenders, last minute credit rescoring, 11th hour requests for additional information. It is all so crazy and I am trying to understand what is really happening (not what the media is telling us) so that we can help our clients prevent and avoid as much of this ridiculousness as possible.
I have several interviews set up with lenders and title specialists in September. I hope to answer the following questions:
1. If I am behind on my student loans, can I get a loan?
2. How do I really compare loans and make sure that I am comparing "apples to apples"?
3. What is a strategic short sale?
4. What is a deed in lieu of foreclosure and how long do I have to wait before I buy again?
5. What last minute issues are cropping up at the settlement table and how can I avoid them?
6. What do we do about an under appraisal?
7. What do I need my credit score to be so that I can get a competitive rate?
8. Do no money down loans still exist?
9. What is the least amount of money I need to have saved up before I buy?
10. Can you give me a list of documents I need for my loan application?
And on and on.
Do you have a specific money question that you want me to blog about? Send it to me asap so I can get the answers from our money and title specialists.
Buying a home if you owe more than market value on your current home?
And now to the answer to the question - can you buy a new home when you owe more than market value on your current home? The answer is yes. Here are some options.
1. Regardless of market value on your current home, if you are "underwater" but current on your loan, then your credit scores should be fine. If your income qualifies you to carry both mortgages, the old and the new, great...you can own both and pay both mortgages.
2. If you don't want to carry both mortgages, you may need to sell your first home before you get the new loan. You can either bring money to the table or short sale. Bringing money to the table is expensive but will preserve your credit scores for when you buy your new home. However, that may not be an option for everyone so a short sale is another choice. Speak to a CDPE, a professional short sale specialist, who can guide you as to whether you qualify for a short sale and the pros and cons.
3. If you can't carry both mortgages and you can't sell, then rent out your current home. It is a great option and as long as you qualify for both mortgages, you can get a new loan, have a tenant pay down your mortgage balance, and sell off the first property when the numbers make sense.
4. If you can't qualify for the new mortgage while you are carrying the old mortgage, you may need to wait 2 years until the first mortgage is not counted against you as a debt. So you can rent out your current home, rent a new home and then buy after 2 years.
So the short answer is "yes", you can qualify for a new home even if you owe more than market value on your old home. Depending on your particular financial situation, you may have several options to choose from. Give us a call, let's talk about what is best for you.
Send me your money questions!