In today’s real estate market, many homebuyers are misinformed by banks and media talking heads about what is possible, and not possible, when it comes to financing a home. Many homebuyers are under the impression that they cannot buy a new home while carrying a mortgage on their existing home.
The information the media spews out about my industry makes my skin crawl. I read articles published by national media outlets that are flat-out incorrect.
A lot of articles will reference something in California, for example, and incorrectly infer that the situation affects people in Acworth and Kennesaw. When that happens, it discourages many people from going after that new home, or looking into refinancing their home to take advantage of today’s interest rates. If I ever leave you with any valuable information please know one thing is true regarding mortgage lending – no two situations are ever the same. What your neighbor did, or did not do, does not mean you can, or cannot, take advantage of the market. This is especially true when it comes to other states.
Let’s talk about banks. I see many cases where homebuyers are given misinformation from banks, such as you must sell your current home prior to buying a new home. This comes from banks having many overlays within their guidelines that are over and above the guidelines I adhere to daily. It can also come from lack of experience by the bankers taking your phone call.
You can buy a new home while still owning your current home – provided you can meet the debt to income ratio requirements and reserve requirements. Currently, there are no hard and fast debt ratio requirements; it is all case by case. Fannie Mae does publish a 45 percent maximum backend debt ratio, but I have recently closed deals with slightly higher debt ratios. Freddie Mac is more liberal within reason. FHA allows higher debt ratios as well. Reserves are simple. You just need to show six months of mortgage payments for both homes. The funds do not have to be liquid and can be in a retirement account. You are not accessing these funds, just showing that you have them.
Debt ratios are calculated off gross income for W-2 employees, not net take-home income. Self-employed clients benefit a lot from debt-to-income flexibility. Self-employed income is calculated using the last two years of personal and business returns. and the adjusted gross net is not the income we use.
In talking with local Realtors, the majority prefer not to make an offer on a new home with a contingency to sell a current home. So if you have been thinking about buying a new home and your current home is not sold, don’t let that stop you. Talk to someone who knows how to close loans.
By Jay White, contributing writer and area sales manager for Bay Equity Home Loans in Acworth. The company was named 2016 Business of the Year by Acworth Business Association.