• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Sonoma County Mortgages

Contact Us About Mortgage Financing

All financing provided by New American Funding

(707) 217-4000 | Prequalify Now

Search Sonoma County Mortgages

  • Home
  • Purchase
    • How Much Down Payment To Buy A Home?
    • How Much Income You Need To Buy A Home
    • How Much Should I Save For Buying A Home?
      • How Rates Affect Payment
    • No PMI Mortgages
    • FHA Loans
    • Sonoma County Disaster Loans
    • Jumbo Loans
  • Refinance
    • Mortgage Rates
    • Does It Make Sense To Refinance?
      • Get Your Refi Paperwork In Order
    • How To Pay Off Your Loan Faster
    • How To Remove PMI
    • How Lenders Price & Quote Loans
  • Loan Programs
  • Payment Calculator
    • Mortgage Affordability Calculator
  • Blog
  • Videos
  • About SCM
  • About Scott Sheldon

Primary Sidebar

Sonoma County Mortgages is a part of New American Funding

New American Funding - NMLS #6606

Get Your Latest Rate Quote Now!

Buying A House Even If You Are Underwater

November 21, 2011 by Scott Sheldon

Share on Facebook Share on Twitter Share on Pinterest Share on LinkedIn Share on Email

For every homeowner who is upside down on their mortgage, this is for you.

An upside down mortgage is when somebody owes more on their mortgage balance than their home is worth, hence the term underwater. People who are underwater on their mortgage have limited options unless their mortgage loan is owned by Fannie Mae or Freddie Mac. Whether their loan is owned by Fannie Mae or Freddie Mac doesn’t change the fact that this real estate market is a fantastic opportunity for purchasing real estate.

Buying a house even though you are underwater, is no easy task, but it’s doable, it just has to make sense.

One of the guidelines that changed for mortgage loan underwriting was the buy and bail tactic that borrowers began taking advantage of. You would have a scenario where John and Susie homeowner were upside down on their mortgage and they would go obtain a new mortgage and use the rental income to qualify on the primary residence they were turning into a rental for income qualifying purposes for their new property they were going to occupy. As soon as they occupied that new property they would simply walk away from the other property, hence the term buy and bail…

So the question still remains how do you purchase new property if you are upside down on your present property?

Well this depends on many factors, such as proximity of the new property in relation to the property to you presently own as well as the motivation for purchasing the property.

So if you’re trying to get to obtain a Sonoma County Home Loan be mindful of the following items:

  • Is the new property you’re purchasing bigger or smaller than the property you presently own? If the property you are purchasing is bigger and you are upgrading this is a good sign. For example going from a three bedroom two bath property to a four bedroom three bath property.
  • How close is the new property you’re purchasing to the property you are subsequently renting out? This is a big factor especially if it’s a primary residence transaction. More on this later.
  • What is your cash position like to purchase this new property? In other words, if you are using a low down payment mortgage like an FHA loan to purchase this property, you are going to have a more difficult time purchasing this property because FHA is very particular on these types of scenarios.
  • Do you have a landlord rental history for the last 12 months or longer? Some mortgage loan lenders require this, choose your mortgage lender wisely. Ask them upfront if this is a guideline of theirs.

Now that we have some general considerations out of the way let’s look at the guideline more closely. The buy and bail guidelines have been revised to prevent homeowners from purchasing property and bailing on another one. For mortgage loan underwriting purposes, rental income on the property that is being vacated and turned into a rental cannot be used unless there is a minimum of 25% equity in that property. If there is a minimum of 25% equity in the property, 75% gross rents can be used for income qualifying purposes.

If there is not 25% equity in the property, then the borrower needs to have enough gross monthly income to support all revolving monthly unsecured debt and both total house payments.

Buying a property with a mortgage loan even though you are underwater, can be done.

The most efficient way of doing of securing mortgage loan financing is to put 25% down on the new property and purchase it as an investment property.

There is no guidelines about purchasing an investment property with 25% down with buy and bail. Moreover, the gross rental income via a comparable rent survey can be used for loan qualifying purposes. This means if you’re needing to get a mortgage loan preapproval for Sonoma County, you can do it with ease.

Q: If I buy a new property with 25% down as an investment property how do I qualify?

A: Each mortgage loan scenario is different. So nobody can just blanket qualify, however if you are putting 25% down and you’re buying a property as an investment property you more than likely will be able to have that mortgage loan scenario work assuming all the other factors are in place such as income, credit and assets. Most of the time mortgage loan lenders prefer you to have at least six months of mortgage payments saved in the bank as reserves.

What if I’m buying a new primary residence?

This becomes more difficult, but potentially doable provided you meet certain criteria. If you are upside down on your present home, and want to buy a new primary residence and you have enough monthly income to support both house payments as well as any other monthly debt you might have, you might want to consider buying up- purchasing a larger home with more square footage etc. This goes in lockstep coordination with your motivation to purchase this new primary residence. It will look significantly better if you also have at least a 10% down payment if not 20% down to be able to purchase the new property as a primary residence. Additionally, you will have to have at least six months of mortgage payments saved up in the bank for both properties.The lender might also require a full appraisal report on the property that’s being been vacated and turned into a rental.

Buying a property even though you are upside down must make sense.

Mortgage lenders and even mortgage loan underwriters today are looking at every mortgage loan with a fine tooth comb. They want to be able to write loans that make sense. So get a rate quote and begin the process.

If you can justify the purchase of the new property, that’s what mortgage lenders are looking for. You could also simply purchase the property as an investment property. Discover how to buy another home even if you are underwater on your present home.

 

 

 

 

 

 

 

 

 

 

 

Related Mortgage Advice from Scott Sheldon

  • ideal mortgage loan scenario
    New underwriting guidelines coming June 25 may change your mortgage

    New changes coming to Fannie Mae's automated underwriting system June 25 could change the way…

  • Counter Mortgage Loan Approval Is Sign You Have The Right Lender Working For You

    Congratulations purchase contract is accepted and you are now officially "in escrow". You go ahead…

  • 6 Reasons To Buy Income Property Now!

    This real estate market is continuing to produce many fantastic opportunities including a very make…

  • Loophole To Show More Income When Buying A Home

    Buying can be considered simplistic, in a broad sense, income is used to offset a…

Filed Under: Invesment Properties/Second Homes, Underwriting Guideline Updates

Get Sonoma County Mortgages News and Updates in Your Inbox

Footer

SCM on Facebook

SonomaCountyMortgages.com

Connect on Facebook

SCM On Instagram

Follow Sonoma County Mortgages on Instagram

Follow on Instagram

SCM on Zillow

Zillow Reviews for Scott Sheldon, New American Funding

See Reviews on Zillow

Location & Contact

Sonoma County Mortgages and New American Funding are an Equal Opportunity Housing Lender

Scott Sheldon, Senior Loan Officer
NMLS ID# 287389
2455 Bennett Valley Road C107
Santa Rosa, CA 95405
1-707-217-4000
View SCM Map | Email Us!

Map of Sonoma County Mortgages New American Financing Office

View Map on Google

Copyright 2010–2023 SonomaCountyMortgages.com · About Us · Sonoma County Loans · Privacy Policy · Terms Of Use · Legal · Site Map

NMLS Consumer Access © New American Funding. All rights Reserved. NMLS ID#6606.
Corporate Office 14511 Myford Road, Suite 100, Tustin, CA 92780. We at New American Funding take great pride in our customer service and make it our number one priority. We encourage you to contact us for complaint resolution or any post-closing questions you may have regarding the servicing of your loan. We strive to have your experience with New American Funding a stellar one. In the rare case that our service did not meet your expectations, please call our customer care hotline at 1-800- 450-2010, ext. 7100 or you may contact us by email customerservice@nafinc.com. Please leave a detailed message and we will follow up with you no later than the end of the next business day. If you are using a screen reader or other auxiliary aid and are having problems using this website, please call 800-450-2010 Ext. 7100 for assistance.

State Licensing (Opens in New Window) | Privacy (Opens in New Window)
Terms of Use (Opens in New Window) | Electronic Consent Agreement (Opens in New Window)
Opens in new window Opens an external site Opens an external site in a new window