Posted by Tim Fierro (WA) on October 16, 2001 at 02:47:26:
Check with a mortgage broker, but I think that you can get credit as income for 75% of the monthly income being generated by the ‘lease’. However the debt service would still be there against your ratios.
$ 750 Discounted Lease (Incoming Cash)
You have an additional $1,000 in debt for the ‘old’ home, but you have an additional ‘income’ from the discounted amount allowed by a mortgage company when they work out the ratios.
To overcome, you might get lucky if you had;
$ 750 Mortgage on old house
$ 1,000 Lease payment coming in
The discounted lease payment coming in as cash would actually be $750 so it would be a wash. I don’t know the value of your house and what you would get on a lease, and I don’t know the monthly mortgage(s) you may have on it; but hopefully you get the idea.
Mortgage qualifiying after selling via L/O - Posted by Tim
Posted by Tim on October 16, 2001 at 01:15:40:
To the gurus of CREONLINE,forgive me if I’m in the wrong forum but:
I’m considering to sell my house via L/O but concerned about
how it might affect my qualifications for a new mortgage on
another home. I have no problems, otherwise, in qualifying
(excellent credit and so on). My thought is to convert my
current residence into a temporary rental unit for additional cash flow for a couple of years, plus I need a bigger house. So I think this could be a way to go if it
doesn’t affect my ability to get another mortgage.
What issues do I need to be aware and does it affect my
FICO scores and so on and so forth? Hopefully someone has some thoughts on this. BTW, you guys do a wonderful job here
by gracefully informing the uninformed. Thanks!
Re: Mortgage qualifiying after selling via L/O - Posted by Dave T
Posted by Dave T on October 16, 2001 at 14:20:20:
"My thought is to convert my current residence into a temporary rental unit for additional cash flow for a couple of years, plus I need a bigger house. "
I am going to make three assumptions here:
You have owned and occupied your primary residence for at least the last two years.
Your equity in the property is too low to make a sale profitable now.
Market rents are just little higher than your current monthly mortgage payment, but not much higher.
If these assumptions are correct, then a couple of cautions are in order.
a. Once you convert your primary residence to a rental, you must sell it within three years to keep the profit on your sale tax free. If you keep it as a rental for three years and one day, your former primary residence is now investment property and the profits on the sale are taxable capital gains.
b. If you only want to rent for a couple of years, then expect vacancy and fixup costs to eat up most of your “cash flow” for the two years. I only say this because your strategy makes sense if you don’t have enough equity in the property to make a profit on a sale today. You hope that appreciation will create equity if you can only collect rental income for two years. When you are ready to sell the property, you may have to replace carpets, repair damage, repaint, and take care of the general upkeep while your property is on the market – your cash flow for the last two years may just disappear.
Tim & Doug,Thanks for the response!(nt) - Posted by Tim
Posted by Tim on October 16, 2001 at 11:19:48:
Re: Mortgage qualifiying after selling via L/O - Posted by Doug (ON)
Posted by Doug (ON) on October 16, 2001 at 09:28:42:
Tim’s right. If you have a good debt-income ratio then you shouldn’t have a problem. Some lenders might even give you full credit for the lease income. Remember, everything is negotiable. The lenders want business and if it means giving you full credit, they might be persuaded to give it.
Like Tim said, talk to a mortgage broker (or three).