Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Every home buying situation is unique, but there are a number of buyers who qualify for a mortgage loan on another home, while they still reside in their first home. There are a number of reasons why people opt for a 2nd home. Their family might be growing and they feel the need for a bigger house. In some cases, people get a job transfer and have to relocate to a new home. The question here is- are you required to sell before you buy?

Things to Consider

The answer is not a straightforward yes or no as there are a number of factors that come into play. If you are in a strong financial position, you qualify and can afford your present residence as well as the proposed payment on the new home, then you will not have to sell the first home.

Even if you do qualify for a mortgage loan on a second home without having to sell the first, there are some other considerations you will have to take into account. When you plan on maintaining multiple properties, you will also have to factor in all the additional expenses such as:

  • Mortgage payments

  • Higher property taxes

  • Hazard insurance

  • Unexpected repairs

  • Others

Can You Rent Your Current Property?

There are different possibilities in this scenario as well:

If you do not qualify to carry mortgages on both the houses, you might have to rent the first property to offset your mortgage payment. In this scenario, the lender will then generally count only 75% of the total monthly rent that you will receive.

There is another aspect which has to be taken into consideration. Most lenders have a reserve requirement & equity ratio, and this can be a big hurdle in your path. In some cases, if you plan on renting out your existing home, you are required to have a minimum of 25% of equity to offset the payment with the rent that you will receive.

Without that large amount of equity, you’ll need a significant amount of money in the bank and will have to qualify for mortgage payments on both homes. If you do not qualify for both the mortgage payments, you will obviously have to sell the current house before you buy the new one. For more information about how the process works, contact ResMac Home Loans today.

 

Understanding the Difference Between an Appraisal vs Neighborhood Listing Prices

Many homeowners wonder why there is such a big difference between their appraised value & the selling-price of other similar homes on their street. The key distinction lies in the purpose of these 2 evaluations and the people who are conducting them.

Appraisals

The primary purpose of an appraisal is to ensure that a third-party verifies the most-likely sale price of the property, based in its market value and condition. Typically, an appraisal is meant to be a very realistic determination of the value of that home if it were to be sold in its current condition in the current market. In addition to this, the appraisers have to follow the rules that are supposed to even out the subjective-process of deciding what the value of a home is. Appraisers look at factors like:

  • Location

  • The above ground size

  • The room and bathroom count

  • Style of the home

  • Amenities

  • Condition of property

  • Amount of time it takes for a particular home to sell

  • Whether values are increasing/decreasing/steady

Appraisers also look only at the comparable sales within a specific distance, usually 1mile except in the rural areas, & within a certain period of time.

Listing Prices

Listing prices are determined on the basis of very different factors- are set by interested & emotional sellers and influenced by a real-estate agent. When sellers list their homes, they aren’t held by any specific rules. In certain situations, they may take the amount they paid for the home, what they spent on improvements and add a profit.

Sometimes, they list their property based on the amount that is required to pay the closing costs, the real estate agents & cover the mortgage amounts. If a particular home is selling for a very low price, this is generally because the owners might have to move in a hurry and want to make their price very competitive. Foreclosed properties could also be listed at lower prices.

In some cases, asset managers may be making decisions from a completely different part of the country, which may explain the disparity in prices. And so, there are really no set rules when it comes to determining the actual value of your home. In the end, the opinion of the lender who is securing that particular property for a mortgage is what matters. For all types of mortgage-related information, contact ResMac Home Loans.

 

Five Myths About Home Values

When the economy is booming and home values are on the rise, homeowners rarely question appraisals too much. But in times of recession, when property values are on the downtrend, most homeowners & listing agents tend to question & pick apart appraisals. But the actual appraisal process has not undergone much of a change since the boom and bust in the housing space that took place between 2001- 2009. Take a look at 5 topmost appraisal myths:

  • I have put in $15,000 into a property very recently- Why is the appraised value not higher than that?”

It’s a misconception that every improvement carried out in a property will add to its value. Even with significant cosmetic repairs, there are times when the property value may be comparable to a foreclosure right next door, rather than the value of a new home that is a block away. The electrical, air and heating are priority, square footage and the number of beds and baths comes next while genuine cosmetic upgrades are on the lowest rung of the home improvement ladder

  • My home is comparable to some properties right in the neighborhood- but it’s being valued at much less”

If a homeowner is planning on selling a house that has added $150k in upgrades to the flooring, built-in cabinets and the kitchen, it might be much more beneficial to show that property in magazine ads or in an open house. The fact is that the homeowner might be stuck with a much lower appraisal (even lower than comparable properties right across the street).

This happens because the appraisers always use properties from that same neighborhood to first establish a value. In simple words, the seller ended up over-improving their home for that specific neighborhood

  • I just invested $50,000 in a pool- why does that not count for anything?”

Professional landscaping and pools rarely ever see a value-add that matches up exactly to the amount that has been spent on that improvement. This value is also largely based on the comparable sales in a particular neighborhood.

  • How can very similar homes a particular neighborhood appraise for vastly different values?”

This is a very common question that crops up for older neighborhoods where there may be drastic price differences for homes that are modeled similarly. Square footage and additional rooms might be the primary reason for a particular property appraising much higher than another.

When an appraiser determines the value of a property, the size, square footage, improvements, location, neighborhood amenities and market trends are taken into account. Contact ResMac home Loans, to understand more about how an appraisal works.