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Buy Primary Property as “Investment” if Debt Ratios Tight

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.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646