30% equity in your current home for rental credit
Written on Aug 21, 2009 by Charles Kim
In todays real estate market, the challenge of current homeowners to upgrade or relocate is being able to sell their current home. With the downward trends over the past few months, these home owners are finding it difficult to sell their homes at a price in their minds is acceptable. Often times they are in a position to still upgrade without selling their current home by renting it out.
One problem, although you may think you qualify for a second loan with your current income and funds to close in hand, you maybe in for a surprise when you realize that you will only receive 70% to 75% of the rental income on the home. The rest will still be added to your overall DTI (debt to income) ratio. Worse, in order to even qualify for the rental credit you must have at least 30% equity in the home. With falling home prices, the banks will require an appraisal and you maybe in for some unexpected news for the worse. If the appraisal does not come in high enough, you will now have to qualify for the new loan amount as well as the current one you hold. This will typically put the brakes on any hopes of qualifying to buy a new home since your DTI will now included the full mortgage amount plus the new mortgage you are looking to secure.
Do your homework first before you start spending money on appraisals and worse, getting your dreams shut down midway through the process. Contact your real estate professional and your preferred experienced lender to steer you in the right direction.
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