Whether you have to relocate because of your job, or you just found your dream home, qualifying for a mortgage loan if your old house is still on the market will be difficult. Most likely, carrying two mortgages is out of the question, so you are looking for ways to buy that new home before selling the old one. This wasn’t an issue in the past, but the financial and housing crisis has made it very hard for the average home buyer to receive a mortgage loan in this situation.
Before the Mortgage Crisis
Being approved for a new mortgage loan before you sold your old home wasn’t very difficult in the past, before the mortgage crisis. The process was as simple as finding a tenant and getting a rental agreement, and then the new lender would credit you with the rent income to compensate for the mortgage payment.
Companies that advocate strategic default have started to encourage buyers to abandon the old home and mortgage as soon as they found a new home and someone to rent the old one. This way they can avoid the negative effect that a foreclosure would have on finding a new home. This has made it a lot tougher for legitimate home buyers to be able to obtain a new mortgage loan in this situation.
Getting a Mortgage Loan Before Selling Your Old Home
Nowadays, requirements for getting approved for a new loan when you haven’t sold your old house have gotten much stricter. Freddie Mac, Fannie Mae, and the Federal Housing Administration (FHA) have made it a lot tougher to borrow money, in order to protect the lenders from people who would take advantage by walking away from their old home.
Federal Housing Administration (FHA) loans can still be given, even if you haven’t sold your old home yet, but there are a few strict qualifications:
- New job or job transfer to a different location. Having to relocate because you found a new job or you were transferred from your old one and the commute is impractical from your current home.
- Divorce. You are currently going through a divorce and are buying a new home.
- Family size. You family’s size has increased so much that there is no longer enough room in your current home to accommodate all the members of your family.
In addition to that, it is required by the FHA that you pay the mortgage balance down to 75 percent of your home’s appraised value before you will be able to close on the new home.
Fannie Mae and Freddie Mac require that, in case your old home isn’t sold yet, but it is in escrow, you must have a reserve fund equal to the payments for 6 months, including property taxes and insurance, and you must bring a valid purchase contract. In case your old home is converted to a rental, you must provide a lease agreement, a copy of the check for the security deposit, and proof that the check was deposited. In order to qualify to use your rent income for the purchase of your new home you must have over 30 percent equity in your old home.
As you can see, buying a new home when your current home hasn’t sold is possible, but you will have to meet certain strict requirements. The best option would be to plan your move ahead, giving you enough time to sell your old home and also saving you a lot of headaches and hassle.