I've had 2 sellers ask me in the past week the following question:
- Will I be able to get financing on a new house if I still have a mortgage on my old house? (I had one lady claim that she did a lease purchase about 20 years ago and she couldn't get financing due to her other mortgage still being in place)
I'm not sure if I answered correctly...I said that it depends on the lender that your broker goes with and I said it shouldn't really impact your ability to get a new loan, because you can say that your old house (the one under agreement with me) is an investment property and under lease.
I'm not 100% confident in my answer, and I don't recall seeing this addressed on the forums.
Can you please let me know how you address this question when it arises?
No. That's not correct. They can't "say" their old house is being rented out when they're living in it. That's mortgage fraud.
If they don't have equity to tap and don't have the cash to lock in a new home first, they'll have to sell their old home first and the buy something.
Lenders look at debt to income ratios (DTI), if the some total of the old mortgage and the new mortgage goes over a certain %, which is based on the type of loan they're looking for, they can't get the loan.
Yeah the guy above must have misunderstood what you are asking. All they normally have to do is prove that they are not the ones that are servicing the loan anymore which would be similar to a rental property, however they should not say that it is a rental property. They are allowed to tell their mortgage broker that you are paying it now and most of the time it doesn't affect their debt to income ratio.
I'm not sure about lenders in the US but here in Canada if the seller shows them the lease they will only credit 50-75% of the income toward their income for the purpose of DTI calculation.
That's probably the best your seller is going to get if you've taken this property over on a lease option. But if you've bought it subject to the mortgage then you might be able to sign an affidavit that you have taken full responsibility for the payment. I've personally never had this issue come up, so this is just a suggestion, talk to a good mortgage broker and lawyer.
I see where the confusion is on my part...
Usually, a lender will count some portion of the rental income. Depends on the lender and the type of loan the buyer is looking for.
If a person doesn't have 2 years or more of rental income on their tax returns, some lenders might not include it. Having a signed lease helps, but it depends on the lender.