Can I buy another home if my house is underwater?

Did you know that about 50% of all homeowners in Arizona owe more on their current home than what the home is valued at. This is a shocking statistic, but this information becomes very important once a decision is made that you need to move. Every week I get calls from clients wanting to know if they can get approved to buy another home and rent out their current home. The answer is Yes, but with many lender guidelines. Since most homeowners are underwater, the banks are being very careful on these guidelines. If you fit the guidelines correctly, then buying a new primary home and renting your existing home is going to be acceptable, but if those guidelines are not being met, then the loan will be declined.

First of all the property being purchased must meet Occupancy Guidelines.

Occupancy Guidelines: A primary residence is the residential property physically occupied by an owner as the principal home domicile. Among the criteria
one should consider in evaluating whether a property is a principal home are the following:

• It is occupied by the owner for the major portion of the year
• It is in a location relatively convenient to the owner’s principal place of employment
• It is the address of record for such activities as federal income tax reporting, voter registration, occupational licensing, and similar functions
• It possesses the physical characteristics to accommodate the owner’s immediate dependent family.
• The borrower states an intention of occupy the property as a primary residence.

If these guidelines cannot be met on the new home purchase, then the loan cannot be approved for a primary residence use. The loan approval for home financing would need to be classified as either a 2nd home or investment property.

Once occupancy is established to be legitimate, then the guidelines will fall either under FHA or Conventional Guidelines:

FHA Guidelines: Converting Existing Homes to Rentals

Rental income from the borrower’s current primary residence is permitted, provided at least one of the following FHA requirements is met:

• The borrower obtains new employment or a job transfer that is not within a reasonable commuting distance of the current primary residence or
• The borrower has a 25% equity position in the current primary residence as evidenced by an appraisal or sales price with the most recent six months
• If one of both of the requirements above are met, all of the following documentation is required:
• Fully executed lease agreement (a 25% vacancy factor will be applied to the monthly rent stated on the lease agreement) and
• Evidence of the borrower’s receipt of the security deposit and
• Evidence of the borrwer’s deposit of the security deposit to his or her bank account

Basically if there is 25% equity in your current home, we can use rental income to offset the debt. Otherwise both debts would have to be counted against the borrower.

Conventional Guidelines: When converting a primary residence to an investment property

The underwriting guidelines will use 75% of gross rental income as stated on the lease as evidence of rental income or to offset the payment if the
following conditions are met:

• There must be documented equity of at least 30% in the existing property derived from at least a 2055 exterior-only inspection (drive-by appraisal), dated no more that 60 days from the Note Date.
• The rental income must be documented with a copy of a fully executed lease agreement and
• The receipt of a security deposit from the tenant and deposit into the borrower’s account.

Basically if there is 30% equity in your current home, we can use rental income to offset the debt. Otherwise both debts would have to be counted against the borrower.

Last, the underwriter will require a letter of intent for moving and the reasons have to meet a common sense approach of why someone would be moving such as upsizing, downsizing, moving closer to work, etc. If the intent is not clear or does not makes sense, the underwriter could decline the loan.

If you are thinking of buying again and want to convert that current home into a rental and have questions if you can qualify, please do not hesitate to give me a call.

The telemarketing calls, billboards and radio radio spots all advertise to refinance your mortgage rate before it is too late. Is this all just hype and marketing to get you to call, or is there a true need to get that interest rate and mortgage payment lowered. Let me help uncover some of the facts about refinancing your mortgage.

First of all, there has to be a long term benefit to outweigh any short term costs involved with refinancing.

A good rule of thumb in the past was if the current interest rate could be lowered by 1% or more, then it usually made sense to look into refinancing. Today, with loan balances being low, mortgage insurance premiums going up and equity issues in the home, that past formula may not be a good indicator.

There are usually 2 main reasons to refinance:

1. A straight forward rate and term refinance. This is when you are not looking to take any equity out of your home but just want to lower the current interest rate and possibly the length of the loan. This can be very beneficial in getting the payment lowered.

2. A Cash out refinance. This is when you want to cash out part of your equity of the home and use that money for other things, such as home improvements projects, paying down other debt or maybe taking that once in a lifetime vacation. These days equity is hard to come by with the current real estate market.

Should You Refinance?

It just really depends on your unique situation,

When I sit down with clients we discover if the refinance makes sense for all parties involved and then we either proceed with the refinance. During this discovery phase is when the advise from a professional licensed mortgage consultant can make or break a deal. Bad advice might force you into a refinance that will cost you money but provide no real long term benefit. Good advice might either save your hundreds of dollars a month in a payment or save you on closing costs.

This will be the fourth loan in the last 12 months that I approved using some sort of down payment assistance. Even though seller assisted down payment went away using programs such as Ameridream and Nehemiah, HUD has been allowing buyers to use FHA financing with down payment assistance from a 501(c)(3) nonprofit corporation. Two companies that come to mind that I have worked with now has been Newtown Community Development Corporation Community Land Trust and Desert Mission Neighborhood Renewal. Both nonprofits have certain guidelines that have to be met and will require home-buyer education.

Free Money!!

So far my favorite program from the nonprofits is the Individual Development Account (IDA). This program will match buyer saved dollars of up to 3 times what they saved up. The
cap is $15,000.00. For instance if your client saves up $2,000.00 for down payment, they can get matched up to $6,000.00 from this (IDA). Also, FHA loans will allow the buyer to use the funds for both down payment and closing costs.

This is just one of the many programs that are still available out there for home buyer assistance. For more information about this mortgage program or many others, please feel free to contact me.

I have a funny story to share with you that happened to me the other day and thought I would share. I got a call from my Bank. As most I do my personal banking with one of the bigger banks here in Arizona. Without mentioning names and protecting the innocent, here is the conversation that transpired. “Hello Gary, Hi this is ________ with XYZ Bank and I wanted to get a hold of you and share that one of your mortgages with us is eligible for the HARP program”. HARP stands for Home Affordable Refinance Program. “I noticed you have a rate of XYZ and you can take advantage today of getting your interest rate lowered”. Now on the surface, this sounds fantastic. Most of you have received a call like this yourselves in the past. Now here is the problem. You see the mortgage she was calling about is a 1st mortgage loan tied to an investment property. What she also did not know was that the HARP program is only eligible for primary residence mortgages. So I asked her back , “are you aware that the property is an investment property”. Now I hear a long pause, “Oh it is, Well if that is the case, then you would not be eligible for this program”. Wow, she did a quick turn around.

So here is the moral of the story: Be careful where you get your mortgage information from. This advice was given by a personal banker at a big bank. She is not licensed as a loan originator in the State of Arizona and she is giving you mortgage advice that ended to be false. Most of us would have moved forward with what she stated, filled out lots of paperwork, maybe spent our hard earned money on an appraisal just to be later told by the bank that you were not eligible for the program to start with.

Be careful out there folks!

Seek Out Accurate Mortgage Information!

As most of you know, I am a licensed mortgage loan originator with the Department of Financial Institutions in the Great State of Arizona. I give accurate, reliable advice on mortgages.

As we embark into another year, Most of us are always wondering about which mortgage options are available and what kind of rates and fees are tied to those specific products. So let me share what I think will be the best mortgage options for 2011.







Best Refinance Mortgage Options:

This year refinances will NOT be driven by rates. Here are some of the options that will come up this year.

Cash-Out Refinance:

Yes for you lucky ones that have equity in your home, this option will be available, understand the rates are a little higher than 2010, but not bad by any standards.

Adjustable Rate Mortgage (ARM) conversion:

Some of you will be having your adjustable rate mortgages reset this year. The rate could go up or down but knowing your best option of either staying the course with will be important to know. I can always do a mortgage review and help you determine if a refinance option into a fixed option makes sense for you.

Term Limit Mortgage Conversion:

30 to 15 year conversion: This is a great option to get that mortgage paid down.
15 to 30 year conversion: This can be a great option to help with having more cash back in your pocket.


Best Purchase Options:

Right now home prices in Arizona are at record all time lows, so the timing could not be any better to buy some property. Here will be the hottest options for 2011.

Primary Home Mortgage Option:

If you are a first time home buyer or want to convert your current home into a rental and buy a bigger home now is the time. Rates are still very attractive.

2nd Home Mortgage Option:

Arizona is a great place to own a 2nd home, we have excellent retirement communities for 2nd homes and great vacation homes in the mountains. Rates are excellent and so are prices.

Investment Home Mortgage Option:

This one is got to be one of the best for investors. Not only is our inventory of rental units affordable but our 2010 census report showed a huge growth in population statistics in the last 10 years. Sharpen those pencils and lets make the math work out.


The Mortgage Option of the Future:

Green Home Mortgage Option:

Did you know that the Federal Housing Administration has a special program for buying green homes or converting a current home into a green home. We have an Energy Efficient Mortgage. Not only will it save you lots of money on long term utility costs but will be great for our carbon footprint.

As your 2011 year comes together, as always, I hope you think of me for your next mortgage, where I stand behind my advice, products and services.






"Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.", Chinese proverb