Any guidelines for what banks look at when someone is going after a second home, which would carry a mortgage?

Starting to get serious about a possible move, worried that the current market won't allow for (or easily allow) for someone to take on another mortgage.

What are banks evaluating in today's market?

- Income (duh --- But how do the banks determine how much someone can get approved for in today's environment?)
- Equity to value in first home?
- Money towards second mortgage, which obviously translates back to a monthly payment, which is then compared to monthly income.


Just looking for some general guidelines...

 

A little confused by your question, are you asking about the ability to take out a second mortgage on your first home to fund the downpayment on a vacation home?

If the answer to the above is no, then the process is fairly straightforward.

<--- Not an originator, but can play one on teh interwebz.

Presumption for DJ Scrib is that:

A. You have good credit.
B. You can afford a second mortgage and have a sufficient down payment.
C. Prepared for full body strip search.

Good luck and grab those nice mortgage rates while they are still around, they probably won't last for too much longer. The bond vigilantes are stirring from their slumber!

 

Sorry... Should have made it clearer...

We are looking to move, and have found a home or two we may be interested in. Reality is that it will take a while for current home to sell. Instead of waiting for our current home to sell, then take the equity and put it into the new home and rush to find something, was wondering what the appetite is for banks for give loans for another home, while we look to sell the existing.

Specifically, I know there are ratios they look at, income-to-debit (the 28/36 rule?) that was a barometer to help determine risk. Wondering if that still exists. And what else is out there.

I know I'll have to call a bank or two and get some answers...

 

I have thought about that b/c of the current market knowing that we may need to make payments for 6-12 months or more on our old home.

There are a couple home builders that will buy your old home if it doesn't sell after your new home is built. But, i think they will only give you 90% of what it is worth.

 

Balls of steel, you have.

My neighbor did what you are planning. He ended up not being able to sell his first home and had to rent it out. From my own estimates the rent he is getting is not covering his mortgage/property taxes. He bought that first home in the bubble. Sorry, I don't know the details of how he got the new mortgage.

 

 

Banks are looking for 6 months of reserve funds for your current mortgage and property taxes. You will probably need a minimum of 20% down payment for the new home. Bank are looking @~30% income to debt ratio.

Best of Luck.

 

Does that 30% include other forms of debt, like credit cards, car loans? Or is that just for mortgage.

Our only revolving debt is a small loan on the RDX, which can go away tomorrow. But a credit report is going to show monthly charges to a credit card, which if we have a big spending month, will certainly elevate that ratio.

 

They are more concern with the RDX loan but if you have large credit card debt (even it is payed off each month) it will play a role in that ratio.

Banks are way more strict in providing loans when compared to even one year ago.

 

This is how I became an accidental landlord. Just make sure your plan B includes being able to cash flow on a near breakeven basis on your current place should you decide to leap first.

Bridge loans used to be a layup (pre-crisis), obviously no longer the case.

 

Yea, we have the cash to sustain...

 

I would think one of these loans would be seen as rental property so you may have to put 20% down. My buddy just went through this. He is separated form his wife an took out a mortgage for a second home while he is paying on home 1. They madehim come up with 20%.

 

Formula will vary by lender. Prove you can afford both places, six month reserves, 20-30% down. Become a landlord, G/L.

 

That was our issue. We still had great credit ratings, but that was the big ding we had. We put EVERYTHING on our AmEx and pay it off every month (well you have to).

 

Do these credit pulls provide historical balance information, or is it just "current" (may have a month or two lag)? We could always go cheap/pay cash for stuff for a month or two.

 

Can anyone with a crystal ball tell me what it says about future mortgage interest rates in the coming 6-9 months? Up, down, flat?

 

Don't have a crystal ball, but have a nice Yoda eightball I've had for 20 years...

Depends on:

1. If Uncle Ben makes it rain with another round of money printing (QE3).
2. If the Euro-debt crisis recedes or gains steam.
3. Congress forces Obamas hand with some semblance fiscal restraint.
4. How much momentum the economic 'recovery' gains.
5. How much success teh Central Planners in China have in reigning in their credit bubble and if their talk to diversify away from Treasury debt is real or imagined.

FYI, the yield curve is very steep, and commodities are signaling some warning signs on the inflation front. My best guess is that the best mortgage rates in recent history are probably in the rearview mirror.

 

Figured... Based on what I've uncovered in my research, sounds like rates are going to head up.

 

Construction to Permanent Loans. Anyone know about them?

 

Construction loan is short term, high interest. Completed home will need to appraise for enough for final loan. Risky business these days of flat to declining values.

 

Just a quick update... Narrowing down the builders... Have the lot picked out. But I'm starting to get cold feet.

Partially to blame is the economy. I know it's probably one of the best times to build but realize it will take forever and a small miracle to have our existing home sell. Then there's my wife who is continually complaining about having to pack.

We'll see what happens.

 

What's behind your desire to get a new house? Shorter commute, more space?

 

Are you picking a builders house or having an Architect design one for you?

 

Space and size.

 

Trying to avoid significant architect fees, so we're reviewing prints based on some specific needs that we have.

Dealing with custom builders, so most plans have only been used once.

 

I know for Construction Loans many (if not all) require the Architect to sign off on progress and release payments. From what I understand it's a bit easier to get financing with an Architect on board as a liaison between the bank/owner especially if he has some type of plans to show them. Gives the bank confidence that your not going to run away mid project.

I would look into an Architect because if your going to spend the money on a new home to be build from the ground up, then I would make it exactly what I would want it to be. And you don't need to spend significant fees for an Architect Let me know if I can be of any help.

 

My parents were recently looking into something similar but the bank wanted far more than 20-30% down. Our current house is paid for and valued at >500k and since it was a 2nd property, one becomes viewed as an investment which leads banks to want 40-50% down since it poses a higher risk. My parents both have excellent credit and stable income also.

Situations might be different across the board but just a general experience.

 

Yea, that would pretty much screw us if they wanted 50%. I haven't gotten that sort of feedback from the banks, but I'll be sure to keep it in mind.

Thanks!

 

Just think of the nice birthday party she can throw for you in the new place. Be sure to post Busted Jack pics as you build!

 

Ha!

 

Scrib, can I ask how many beds/bathrooms in your current house? And how much are you against keeping the old house as a permanent rental?

 

Three bedrooms up, one down that is a den right now.


I do not believe we can rent. Homeowners association rules. :ghey:

 

Maybe Mark on here could help you out, not sure if that's the kind of architecture he is into but would at least be a decent resource to bounce ideas off.

 

I know there are options to do extended locks, but how far out? Rates are around 4.75 for a 30yr right now and knowing our luck, would creep up over 5 in the coming months if we were to build.

Was also wondering if you could do a construction to perm loan, which would lock the rate, but we don't need the construction loan... We'd just pay the builder what he needs prior to the actual closing. Would that piss the banks off? Is that even allowed (not drawing on the construction loan)?

 

It really depends on the originator, you will have to pay a premium to do a longer lock.


I can't believe we don't have a number of mortgage brokers who can chime in here. Scrib, have your tried sending a PM to , he pops in rarely these days though... If you don't get a satisfactory response from the folks you are talking to locally, can get you in touch with the guy I work with.

My situation was different than yours because we were dealing with a national home builder who gave us a discount for using their wholly owned mortgage subsidiary. We've since refi'd 3 times in the past three years via a different lender.

 

I've found out more, and unfortunately it's not good. Locks past 60 days are essentially non-existent, or if they do exist have sit rates. The end of QEII is effectively fucking everything up. Banks, who are totally risk-adverse in this environment, are even more so now with the pending end.

So now we're faced with the real possibility that rates are going to go up, and fast beginning in July. Any house to be built would be finished in the Sept. timeframe and while a 5.5% and possibly even higher rate is still historically low, myself and many others have gotten spoiled with these low rates, so it's a turnoff. And that's not good as we're in a position to actually do something.

And if rates increase, my ASSumption is the housing market could go further in the dumper. Who wants a 6% rate (and afford a house on a 6% rate), when we've all been spoiled. Doesn't bode well for us selling.

FML

 

^^ meh...don't worry too much, rates will change and people will get back into the market at some point. Employment is key.

I remember when 8% was the norm.

 

How about renting a house for a year while the new one is being built? Personally I wouldn't worry about rates going up too much in the next year. A 1% move in rates would put even more downward pressure on housing. If anything you would be able to get the new one cheaper.

 

We have our existing home, so I'm not sure where renting one would benefit?

The new home is locked for pricing once we sign the contract. If more pressure is applied, we'd miss out. Now, you could negotiate that into a contract to say that if costs are less, we'd want those savings back to us. However, they all agree with their subs that the job will be fixed bid for $X. If that goes UP, it's on the subs. So I'm sure they'd ask for that compensation. And with lumber prices, concrete and even copper all in flux. I rather take that risk out of the equation.

 

Sell your existing home to get out from under your current mortgage. Rent a house then sign contract to build a new one. It's not going to protect you from a rate increase, but at least you would have your home sold and not have to worry about trying to find a buyer in a market of rising rates. It's a pain to move twice but less financial stress IMO.