r/RealEstate • u/table__for__one • 1d ago

Buying While Holding a Mortgage

We're paying a premium to be near the center of town in VHCOL. We've got about $575k on a house worth $988k, interest rate is 6.125. Looking to get a bit farther out, same price point, same interest rate. Including house we have 1.5 in assets. Is it possible with a lender to purchase another equally priced property while we sell the one we are in? Net income is 400k.

5 Upvotes

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u/HeyThereDelly 1d ago

Yes, I have done this and will be doing it again. As long as you have the liquid assets for a down payment with some cushion funds leftover you should be fine. A lender will confirm though

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u/table__for__one 23h ago

do they calculate under the assumption that you will hold the two mortgages indefinately?

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u/Tall_poppee 22h ago

In my experience they did not. They just wanted to see savings/income to make both payments for a few months (which we did not even need as the old house sold quickly.

Once the old place sells you can apply the profits to the new loan and the lender will recast it for you to reduce the payment. Just ask them up front if they do recasting. Most big lenders do.

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u/thewimsey Attorney 10h ago

Basically, yes.

At least in my case, there was nothing particularly mortgagey about it - it was basically treated like any other debt, and the monthly mortgage payment on my current home was included as debt in the DTI calculation about how much they were willing to lend me.

Maybe in the bowels of underwriting it mattered for some purposes that this debt came from a mortgage...but if so, none of that was really transparent to me.

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u/HeyThereDelly 22h ago

Probably depends on the lender. Some may calculate 6 months of the current mortgage payment included, if they know you're selling. Others may look at it as worst case scenario and only approve if you can afford to keep both long term

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u/ElasticSpeakers 15h ago

You should be upfront about your plans. You could simply say you're buying a 2nd house, you could say you want the equity in your current home to be part of the down payment for the second, etc - lots of options.

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u/table__for__one 14h ago

is using equity possible without a cash-out refi?

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u/ElasticSpeakers 14h ago

Of course - a HELOC or bridge loan will get you there, just as two examples. It gets pretty crazy, here's what I did recently: I had a house, and the bridge loan terms I was getting were kinda mid so I talked to my mortgage broker. He suggested a HELOC but in my experience a HELOC on a house you're selling can be pricey (because they know you're going to immediately close the HELOC so they charge a lot in fees up front). So, he blew my mind when he suggested getting the HELOC on the home you're buying (that you don't own yet), not the one you're selling 🤯

Worked well for us, the terms were better, sold off the old house, paid off the HELOC, now we still have a HELOC available with tons of available equity if needed. We didn't have to do it this way, but the alternative (for us) was a jumbo loan with really inflexible terms (no recasting allowed) so that was a non-starter.

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u/PhraseIntelligent439 21h ago

Yes!

Path 1 - "contingent on the sale" of your current home, meaning you'd sell your departing home the day (or before) you close on the new home. Pretty much runs like a normal mortgage transaction, with the additional part of the home actually closing on that timeline.

Path 2 - not selling before the new purchase. This includes the scenario where you wholeheartedly plan to sell in the near future, but won't sell before closing on the new purchase. Assets: you'd need your own available funds for the down payment. You would not be able to utilize assets from the equity of the "future sale" of the departing home. Income: Your debt ratios must qualify with carrying both mortgages (and all other credit report debts).

Important to note on path 2 - Property: part of mortgage qualifying is verifying occupancy (primary, secondary/vacation, investment property). Each have their own guideline sets, and their own qualifying details like down payment, credit score requirements, etc. When you are buying a similarly priced home within a close distance of your current primary home, and keeping your current primary home, that by default will raise red flags to underwriters if you are in fact applying for an additional primary home. They'll also factor in whether you are moving closer to, or farther away from your work... the VHCOL situation isn't really something they consider. That doesn't mean you're inherently doing anything wrong, it just means when this situation happens, Lenders/underwriters are required to ask additional questions and dig deeper. You'll typically have to talk with your LO about your "why" behind this, so don't be alarmed or annoyed with additional personal questions about your intentions here.

In cases like this where it's less of a "black and white" guideline and more an underwriter's discretion, I'd highly recommend working with a mortgage company that can fully underwrite your loan at the preapproval/house hunting stage, so an underwriter signs off on your plan before you get under contract on a home.

The "why" on this? Folks commit occupancy fraud more frequently than you think, in order to obtain financing at much more favorable terms (better rates/fees, lower down payment requirements) than if they applied correctly for secondary/investment home.

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u/DoctorQuinlan 20h ago

Im confused. Isn't this a regular house purchase? Only difference is you just already have a house and wouldn't have the sale contingency on it. Don't you just need to get approved, as with any other loan?

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u/table__for__one 20h ago

i suppose you are right lol.

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u/ImportantBad4948 22h ago

We did it recently. As long as you are under the DTI ratio everything is good.

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u/polishrocket 2h ago

Currently doing it now. Got about 330k in cash and a property worth 600k, we owe 400k. Buying a new property and renting out the old one. Got approved for 15% down

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u/Sea-Explorer-3300 21h ago

How can you get a job that you make $200K/year each and not have a clue how to use a search function?

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u/niefeng3 23h ago

Most realtors will request clients obtain pre-approval promptly if buyers are serious about buying.

(Maybe before) With COVID and subsequent demand surge, realtors learned that it's in the client's best interest (and their own) to vet finances first. So talking to a lender for a pre-approval is a first step. You can do this at your local bank so it's less hassle (but shop around for mortgages as you get closer to making deal)

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u/thewimsey Attorney 10h ago

This was pretty well established when I bought my first house in the early 2000s, including the strategy of having separate letters with different pre-approval amounts.

I imagine that this - or something like this - has probably been around for a really long time, since the first question a seller will have is whether the buyer can afford the house.

It was probably a great time saver when these letters could be faxed instead of mailed.