Rates Lower than Ever; Buying New Home, but Keeping Current Home- Considerations

30 Year Fixed Rate Loan at a Cost of One Pont: 4.375%*

Rates remain pretty much lower than ever, as weak housing data and a nervous stock market push investors into bonds and mortgages. In addition, the economy remains so weak that inflation remains at bay.

We have many clients buying new homes with the intention of selling their current home after they move, or with the intention of renting out their current home.

Lenders now scrutinize the "current homes" quite closely. First of all, a buyer can use the future rent from a current residence to help qualify for his new home, BUT there must be a 30% "equity cushion" in the current home, or the rent cannot be used. This is a serious consideration, as many of our clients need this "future rent" to qualify.

To prove that there is a 30% equity cushion (existing liens against the home are 70% or less than FMV), lenders often require an appraisal of the current residence. And, if there is a 30% equity cushion and in order to use the future rent as "documentable income", we need to provide three things: (1) a fully executed lease agreement; (2) a copy of the renter's check for the first month of rent and the security deposit; and (3) proof that the check (or an amount equal to the check) was deposited into our client's bank account.

There are also "Buy and Bail" and "Moving Up" issues that come into play when a buyer retains his current residence; these issues will be discussed in future commentary.

Jay Voorhees and Heejin Kim at (925) 855-4491.