Does This Sound Viable?
Hi all,
I am not sure this is the right forum for this, but I was looking to get a little constructive criticism/advice on the following financial structuring:
Current home: Owe 209k, worth about 270k. Sell on 1 year L/O, with 9k down, payment of 1800, sale price of 300k. Take out 40k on a HEL for down payment on next home. Still have positive cashflow of about 200/mo. Appreciation rates are 12%-15%.
Future Home: Price: 230k, Mortgage of 180k.
Problems: Pushes my debt vs. income past 40. Will a No Doc Loan take care of this, and will I qualify? FICO score is past 750.
Pros: Kills the PMI on both properties, saving 200-300/mo (if I understand correctly that PMI is only necessary if the first mortgage is >80% LTV). I have positive cashflow on the current house and a lower mortgage payment for my personal residence in the future. Captures another 30k in equity for my current residence, and possibly carry back some financing after the sale.
Cons: I cannot see any. This is where I need my plan picked apart...
Thanks in advance for any input on this!
Why not ask for a $50,000.00 down payment on the l/o instead of a Heloc. If the buyer is serious they will have no problem with the down payment. Has your present home been your primary residence for 2 of the last 5 years? If so you will not have to pay capital gains.
A No-Doc loan is one way to go, but the rates on these are usually higher then a fully qualifying loan.
Another way to go would be to produce a lease agreement for a period of one year for the property you are selling. Most lenders will reduce your liability for that house by 75% of the lease agreement monthly amount. For example:
If your lease agreement will show 1800 a month, then most lenders will subtract 1350 (75% of 1800) from your debt on that property.
Hope this helps.
The MAJOR CON is if they decide not to buy your property because of whatever reason they want and you are now responsible for 3 mortgages! If you cannot afford this on your own, your credit score will go down faster than you can imagine.
Don't let the 9k down comfort you all that much. People get divorced, lose their jobs, have a major medical emergency, die, etc... and that 9k won't mean much to them if any of those things happen.
If you really want to do this, how about you temporarily renting for 12 months while your deal goes through? This would give you a lot of peace of mind & still only 1 mortage!
I would NOT be in a hurry to take a HEL and another mortgage so quickly.
If you must buy now, put as little down as possible & pay the PMI for a year so you don't have $40k of your precious equity tied up with you making payments on it.
I don't want to scare you out of your deal, but make sure you "cover your ASSets."
Your PMI on your current home needs to be removed regardless.
Happy Investing,
OHhouse