Rates Improve; Buy Primary Property as ?Investment? if Debt Ratios ...

30 Year Fixed Rate Loan at a Cost of One Point: 3.375%* (APR = 3.599%*)

Rates improved yesterday and today; the Fed?s Open Market Committee came out with downbeat economic prognostications, signaling the possibility of further ?easing?; and troubles in Europe continue. As usual, this ?negative news? improved rates.

We often have buyers looking to ?buy up? into a larger property with the intention of keeping their current property. These buyers, however, often cannot qualify for the larger house b/c the new mortgage in conjunction with their current mortgage makes their debt ratios too high.

One solution is to find a renter for the current home in order to provide extra income. But, if there is not a ?30% equity cushion? in the current property, lenders will not allow the rental income to be used to help qualify.

The other solution is to buy the new property as an ?investment property? and then use the rental income from the new property to help qualify. There is no ?equity cushion? requirement for a new property.

With rates so low, having to take investment property rates is not the end of the world if it is the only way to qualify. Investment rates are about 1/2 of a percent higher than owner occupied rates.

Two final points: (1) remember that to use rental income, we need a copy of a lease and a check from the renter, and proof the check was deposited into the borrower?s account; and (2) we acknowledge that we have addressed this ?solution? in previous commentaries, but it comes up often so it merits addressing again.

*The above rate quote has the following assumptions: $500,000 purchase; $400,000 loan amount; 20% down payment; credit score above 740; property is SFR; borrower has sufficient income to qualify; Estimated closing costs affecting the APR include $4,000 for Origination Fee; $995 for Lender Fees; $2,300 for Title Insurance (CLTA and ALTA), $800 for Escrow Fee; and $1,000 for Prepaid Interest.
Call Jay Voorhees or Heejin Kim at (925) 855-4491

Real Estate Broker, CA Dept of Real Estate, DRE# 01524255, NMLS# 335646

Source: http://www.jvmlending.com/rates-improve-buy-primary-property-as-investment-if-debt-ratios-tight

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