When a homeowner sells his home and decides to buy a new one, there are 3 basic options for the residence -- sell it, keep it, or rent it.
In doing that, new mortgage guidlelines make it more important than ever that people sell and setttle their old home before they settle on their new one. Otherwise, no matter which path they choose, move-up homebuyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past.
Its all because mortgage guidelines are dramatically tighter for people "carrying two mortgages".
Among the changes this spring's buyers face:
Selling the primary residence
If you plan to close on your new home prior to the closing of your existing home -- even if it's only by a day -- both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of homebuyers.
Converting your residence to a second home
If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth of mortgage payments + taxes + insurance in reserves for the current home and new home combined.
Converting your residence to an investment property
If your current home has less than 30 percent equity in it, any rental income derived from a tenant is disallowed on your mortgage application for the new home. You must still count the mortgage payment + taxes + insurance as a monthly debt.
In other words, getting your home sold first, just like the old "pre-boom" days is still the smartest way to move forward in the current market because being a move-up buyer isn't as simple as it used to be. New lending rules make buying a new home an exercise in timing and financial planning. And the rules are expected to get tougher, too.
Therefore, if you expect to be a move-up buyer in the next 12 months, consider getting your home listed first, and scheduled to settle before you close on your new home.
Understanding the new mortgage landscape and how they can influence your upcoming purchase may be the difference between getting approved for a home loan, and getting turned down.