Does an underwater mortgage stop me from purchasing real estate?

Question

Hello,

I have a question on a scenario:

From what I am aware on QM loans, what matters is my credit score (history of paying debt service), my income (W2/DTI), my rental property income (2-years), and cash reserves.

Let’s say that I purchase a primary residence with a VA loan and the market continues its downward trajectory. If next year my property loses 20% of its value, will this affect my ability to purchase more real estate? Assume 100k underwater.

Would love to hear any advice regarding this scenario. Thanks in advance!

Account Closed · Answer

Not likely to be a problem as long as you keep making the payments on time.

Nate Sanow · Answer

The short answer is probably no, assuming you do not sell it off at a loss, rack up debt, etc. You really have two different loans and scenarios here you are trying to intersect; 1. Buying a house with a VA loan (VA loans are for owner occupied property upon acquisition, yes you can eventually move out and rent) and 2. Buying investments with nonQM

The status of a primary residence doesn’t matter in relation to the status of your ability to borrow with nonQM… same is true borrowing for hard money, or any private lending that is not related to traditional loans sold on the secondary market / Fannie / Freddie style.

Now as others stated, DONT buy something that will go “underwater” !!!!!! That’s not a good mindset. Perhaps reframe the question to, “ ok what happens if this asset goes down in value momentarily.” If so; continue to hold.

Theresa Harris · Answer

It shouldn't, but as others said don't buy something that is overpriced or in an area where you expect prices to go down.

Mike Dymski · Answer

My advice - don't buy a property that has risk that it will lose $100k of it's value.  That's the opposite of investing.  The market is uncertain but there are growing areas where the risk of an additional 20% decline from already reduced prices is not high.

Charles Granja · Answer

Thank you, this is helpful. I’m phrasing this way because I am buying more houses next year and my equity position on this 1 property would be 0%. I don’t care where prices go and don’t think anyone has a crystal ball, I’m just going to keep buying good real estate.

Does an underwater mortgage stop me from purchasing real estate?

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