I have 2 questions for you experienced guys out here. My wife and I live in duplex we bought 5 years ago, the other side is rented (Feb 2009- Feb 2010). We paid $160k for it, CMA says it worth $195k. It is in excellent condition, new paint, new carpet/wood floor and is in a very good neighborhood, so renting it is within days. PITI on the duplex is $1500, renter pays $850.
We plan to buy a SFH for us to live in and want to keep our duplex and renting our current side out, our combined salaries is $90k/year. Monthly debt including our portion of the duplex mortgage is $2100, my FICO is 745, spouse is 635. I work for the government and wife is a nurse. No negatives on credit reports.
My questions:
How will the lender look at the duplex, will they count the $1500 PITI on it as an addition to our debt or a portion of it?
Will keeping the duplex reduce or increase amount will can be pre-qualified for?
With va loans you can use 75% of the signed 1yr leases.
Any overage gets added as income while shortage would be counted like a monthly expense.
So let’s assume your negative is $225; as long as your income can handle the shortage, new mortgage. And other credit liabilities keeping the duplex shouldn’t hurt you.
Technically it will reduce the amount you could ultimately receive. Unless your looking at homes over $300k I wouldn’t worry about it.
Do you have a mortgage professional that could help you.
Did you use any of your VA entitlement to purchase the duplex? If so that could be an issue.
As for keeping the duplex Ben made some good points that I would like to expand on.
1.Your negative PITI on the duplex is $862.50. (1500- 637.50 ((this is 75% of the rent that is paid on the other side))=$862.50). Is that number accounted for in the $2100 in debt you posted? If not then that may change your numbers a bit.
You posted that you bring home 90K per year which is $7500 per month. While you can qualify for a VA loan with a debt to income ratio of 50% or higher lets use 50% as your qualifying number. That means that you can have a TOTAL of $3750 in TOTAL debt including the duplex payment, car payments, credit cards, etc… if all of your debt is $2100 that leaves you about $1650 a month for your new house payment and still keeping you at or under the 50% debt to income ratio. Keep in mind that you will probably rent out the other side of the duplex but if you are currently living in it until you buy your new home you probably will not have that income available to help you qualify. Hope this helps.
I appreciate your responses, we did not use VA for the duplex, we are using it for the 1st time and have a couple that are interested in moving into our current side as soon as we move out (to our new home). They are willing to sign a 12 month lease a month before we move out. I am wondering if this will be a concern issue to the lender to have a future lease (since we still live in our unit).
The $2100 monthly expenses include the $650 we add to the PITI on the duplex (850 from renter+650 from us). We are looking at max $200k home. We live in TX.
If there are no negatives on your credit reports, then why is your spouse’s FICO only 635?
In this lending market, I fear that your wife’s credit score will prove difficult to overcome when you are looking for financing. I have no idea whether VA has a FICO score criteria, but last time I checked. conventional loan programs are looking for FICO scores above 720.
If your spouses FICO will disqualify you, then you have to apply for the loan as the sole borrower. Don’t know if this will fly in TX, since you are a community property state and as a general rule both spouses are named on the title, so lenders like to have all titled owners on the loan.