Downgrading - Loan of 5% vs 20%

4 Replies

Hey All, 

I'm trying to buy my 3rd property but don't want to pay the 20% down payment. I figured I would just move from my current place and rent it out, while moving into the new place, thus taking advantage of the 5% down payment. My mortgage broker just advised me that banks "lenders" don't like when an investor downgrades, in my case, going from a 2 bed in downtown Chicago to a 1 bed a little further out. Something about banks not trusting or believing that a Investor would want to downgrade and is only pretending to move to take advantage of the 5% down payment.

Nonetheless, I broke it all down, giving the reasons for wanting to move, I'll save 9k in mortgage payments, 2k in utilities, and make 3k cash flow renting my current condo, over all it's simply financial, what's so hard to understand that ........ But he thinks I'm not going to get approved for the 5% down payment loan and will need to do the 20% one.... Which I can't do as it will kill my cash reserves for my current properties.

Has anyone had issues with getting a 5% conventional load by downgrading to a smaller place.

Thanks for your help!

yes I have heard the same thing. On the other hand we only buy with 5% down as personals saving the larger downpayments for investments! I have found that if you can provide a good reason one can be successful!

I literally just did the same exact thing.  The underwriter did give me some flack but ultimately approved me.  I'll copy and paste the letter I had to write explaining my move.  They can suspect all they want but they can't prove what you're trying to do.  

"To Whom It May Concern 2/24/15

My wife and I have decided to sell our current home and purchase a home near family. We have an additional child on the way and with our work schedule it will be easier for us to manage our work life with the help from family. I realize that we are downsizing our home but have plans to add on and update property."

Not all of this was 100% true but it's what our lender recommended we write.   

Stephen Hundley MBA, Keller Williams Realty Acadiana | 337‑789‑6538 | http://HundleyRealEstate.com | LA Agent # 995681753

Originally posted by @Elizabeth Colegrove:

yes I have heard the same thing. On the other hand we only buy with 5% down as personals saving the larger downpayments for investments! I have found that if you can provide a good reason one can be successful!

 Thanks @Elizabeth, 

Hopefully with my reason of "i'll save $14k a year" will be good enough.....

Originally posted by @Stephen Hundley :

I literally just did the same exact thing.  The underwriter did give me some flack but ultimately approved me.  I'll copy and paste the letter I had to write explaining my move.  They can suspect all they want but they can't prove what you're trying to do.  

"To Whom It May Concern 2/24/15

My wife and I have decided to sell our current home and purchase a home near family. We have an additional child on the way and with our work schedule it will be easier for us to manage our work life with the help from family. I realize that we are downsizing our home but have plans to add on and update property."

Not all of this was 100% true but it's what our lender recommended we write.   

 Thanks @Stephen, 

Interesting, i guess ill talk to my lender and see what he recommends when i mention "what if i write a letter"

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