Written By: John Pyne May 18 2014

Managing Two Mortgages: Buying A New Home When You Already Own One

What You Need To Know About Managing Two Mortgages

Often people need to move quickly if they are relocating for a new job, family growth, or simply because the house they’ve always had their eye on is put up for sale. Most buyers would prefer to continue living in their current place while buying a new home, so they can avoid the cost of hotel accommodations and the inconvenience of moving twice. Moving into a new home before selling your current home is possible, but it may be more difficult for you to write a non-contingent contract.

Here are a few questions your lender may ask if you find yourself in this situation:

Do you have the income to cover the new mortgage payment and the payment on your existing home?

Do you need the equity from your current home as a down payment on the new home?

How much equity do you have in your current home?

How much cash do you have on hand for the down payment on the new property?

A few years ago, if a buyer didn’t have enough income to cover both mortgages, a lender would suggest that the buyer put their current house up for rent and have a lease in place that coincides with the settlement date. Lenders could then use the rental income to offset the current mortgage payment and help the buyer qualify for the new mortgage.

This loophole was abused by underwater home owners who strategically let the property they were vacating go to foreclosure after they moved out. As a result, Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) have put out new rules requiring a certain amount of equity be retained in the vacating property so that rental income can be used to qualify. The equity must be verified by an appraisal. The appraisal must be ordered by the lender providing financing for the new home.

Breakdown of required equity requirements:

Freddie Mac: 30% verified equity

Fannie Mae: 30% verified equity

FHA: 25% verified equity

In some cases, the buyer may have enough income to cover both mortgages and enough cash on hand for the down payment on the new home. However, in a lot of cases buyers need the equity from their current home for the down payment on the new property. In order to present a competitive non-contingent offer prior to the sale of your home you may need to explore a few more options. One option is to use a short-term loan from retirement or investments for the down payment.

These loans could simply to be paid off with the proceeds from the sale of your existing home. There is also a bridge loan option where the lender will loan you funds for the down payment on the new property by recording a lien on your existing home. This loan must be paid back once the existing home sells.

Like many people, you may find yourself in a scenario where moving into a new home while you still own another is unavoidable. It is possible, just be prepared for some extra hoops to jump through, and let your mortgage lender guide you to the best options for your situation. This is a situation we handle frequently, and it's only one of the many things we're good at.

Please feel free to contact me if you’re in the market for a new property of any kind or just have questions about financing.

About the Author: John Pyne

John is a Senior Loan Officer at Intercoastal Mortgage Company in Fairfax, Virginia. John enjoys serving as a residential financing expert, not only for his clients, but also for the community. John strives to make each mortgage loan transaction as stress free as possible by educating his clients on all available options, answering all questions thoroughly, and being as accessible as possible. This focus on customer service is what sets The Pyne Team apart from others.

Contact John Pyne for any of your financial needs or questions.