Buying a new house and keeping your current home?

You might ask: Why lenders ask SO MANY questions when you own a house and want to buy another? Your income qualify for both house payments – the house that you are buying and where you live now, why do underwriters ask so many questions about my current home???? You plan on renting out your current home, why do they think you are lying? Here is why.

As we all know, the housing market crashes so hard that many existing homes are upside down in value. For homeowners who just simply cannot afford the house payments, they walk away. They allow banks to foreclose on their house. They move back home living with their family or rent a house until their credit is repaired to buy again. However, many homeowners want to let go of their homes, but they don’t want to rent. They want to walk away not because they don’t have a job or they cannot afford the house payments. They walk away because they don’t think it makes financial sense to invest in a house that is no longer worth the value. Yet, it is so upside down in value that they are not able to sell it. Therefore, instead of just walking away from their current home, they buy a new house first, move out, then walk away from their current residence. This is called a “buy and bail”.

Many banks are aware of this situation and try to tighten up the guidelines and avoid financing to this type of borrowers. That is why when someone is buying a house when they already own one (and don’t plan on selling it), you better have a very good reason explanation why. YES, we will need a letter of explanation again (yeah, I know I know). Here is some common explanation on why people are keeping their current residence that is acceptable by most banks:

  • Increase in family size: Example – When there is a new addition to the family, such as a new-born child or your children are all grown up and need to have their own room
  • Decrease in family size: Example – Kids graduated from high school and they are moving out, parents feel there isn’t a need for a big house and wants to downside
  • Need a smaller house: Example – Elderly wants to live in a one story home vs two-story. Borrower is getting older and is having a hard time climbing to the second floor
  • Relocation: borrowers is relocated by current employer and wants to move closer to new work location.

There are a lot more to this than what I am telling you on this article. If you have a unique situation, feel free to ask questions. I will be more than happy to help you.

17 thoughts on “Buying a new house and keeping your current home?

  1. Michelle on

    Ok thanks!!!Just wanted to know, for FHA loans do they make the rental history mandatory for approval? Are there any alternates that can be provided? Also the lender stated it would go through manual and auto underwriting, is that normal protocol? Again,thanks so much for all of your help.

    • Underwriter on

      Michelle, I am glad to help…especially in your situation. All FHA loans go through what they called a scorecard approval. If your loan receive an auto approval, lenders will not ask for a VOR (verification of rent). However, if your loan receive a “refer” approval, VOR will be needed. This is entirely depending on the outcome on the system. I hope that explains it.

  2. Michelle on

    Florida

    • Underwriter on

      Since Florida is not a community states, lenders will not pull spouse credit report. Which means the lender will not know that you own a property. Go ahead and write them a letter indicating that he is lives with you rent free, but it’s up to you if you want to disclose the fact that you are his wife and the whole story about your current home. Please follow up with me and let me know what they say after you submit this letter to the lender.

  3. Michelle on

    Hi,
    Thanks so much for your response.Yes my husband is applying for a FHA loan. We have not informed the loan officer that I own the house, he knows that my husband does not have current rental history, doesn’t know why yet. He asked husband to provide current letter from owner that husband has been living rent free for x amount of time. And yes my husband did use the current address on the prequal application.

    • Underwriter on

      What states do u live in?

  4. Michelle on

    Hi,
    I just found your website and it has been very valuable resource to my family. I have a unique situation in that the current house we are living in is making us literally sick, my children as well as myself. The home was financed under my credit and the deed is in my name only, though my husband is on the mortgage, NOT the actual note. The house does not show on his credit report. The problem is he is attempting to purchase a new home as we have 1)out grown this house and 2) most importantly the house is making us ill, numerous hospital bills to substantiate something is going on. I am currently behind on this mortgage and facing foreclosure because I can not work due to illness. How can we explain in letter that we want out of the house because it is causing massive health issues without it sounding like we are trying to buy and bail, which is not the case at all. If the home wasn’t sick we would have stayed and modified the loan. I met with an atty and they stated we can’t sell because we can get sued for sick house though the people who sold to us knew it was sick! Please help please!

    • Underwriter on

      Hi Michelle,

      I am so sorry to hear about your situation. Here is what I want to know in order to help you. Is your husband applying for a FHA loan? Does the lender already knows you own the house? On your current loan application, did your husband already disclose where you guys are currently living in? Your attorney is correct. If you sell your current home, new owners can sue you when they get sick.

  5. Claire on

    Hi there, I have just come across your site becasue we are 10 days away from closing and have run into a big hurdle. We have a lease agreement for our current home with a contingency stating that our home is for sale and we will notify the leaser once our home in under contract. Our current home is now under contract but they said we can not qualify for both mortgages. The reason is that we can not use rental income to qualify if the home is for sale??? Right now there is a 4 week difference in closing dates. We have cash for the 20% down, perfect credit and our new mortgage will be $50 less per month than what we currently pay. Any suggestions or help would be appreciated. Thanks

    • Underwriter on

      Hi Clarie: The lender is correct. You will not be able to use any rental income because that house is currently for sales. The only way to make it work at this point is trying to close them concurrently or you will have to wait until after you have sold your current home. I understand you are supposed to be closing within 10 days. Work your loan officer to see about a rate extension if needed to close concurrently. Any question, feel free to comment on.