I recently had a client consider buying a new home, they’ve outgrown their current house – however, they don’t want to sell their current home since it has such a low interest rate. They’d like to keep it as a rental in the long term.
Maybe you’re in the same boat? I think there are a lot of folks who locked in over the last 3-5 years with a Great Rate and can’t imagine letting that go. So I reached out to a few of my Preferred Lenders to ask the experts.
The question became, well, a couple of questions:
  1. Could they do a HELOC (home equity line) to use as the down payment on the new home?
  2. Would they have to move out of their original home and provide a 1 year+ lease to show mortgage payment covered/renter in place and supplement DTI (Debt To Income Ratio)?
  3. Is there a better product or way to accomplish this?

I didn’t know how to advise them or what their options were (always stay in your lane and defer to the professionals!). So I asked four of my lenders to please enlighten me and the general public on their different available products and/or how you would advise this couple as their best option. I’ve attached each of their responses below along with their contact information.

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1. Could they do a HELOC (home equity line) to use as the down payment on the new home?
Yes, but they will want to get the HELOC in place ahead of time as it takes about 30 days from start to finish so you want to have that in place before putting in an offer on the new house

2. Would they have to move out of their original home and provide a 1 year+ lease to show mortgage payment covered/renter in place and supplement DTI (Debt To Income Ratio)
If they need to use rental income from the departing residence to qualify from a debt to income standpoint, for a conventional loan if you have a fully executed lease agreement and proof the deposit has cleared their account, we can use 75% of the monthly rent amount to offset the PITIA of that property. The start date on the lease can be after the close on the new purchase.

3. Is there a better product or way to accomplish this?
There are different options, however, from a financial standpoint if needing to access equity in their current house for the down payment, a HELOC is the best route. Other options are bridge loans but they are more expensive as they generally cost 2-3 points on the front end and aren’t meant for someone looking to rent that property out down the road.

Page Jacobson | Senior Loan Officer / Sales Manager
NMLS 807444
Office (704) 585-1193
Mobile (336) 508-3486
Fax (704) 512-0823
6832 Carnegie Boulevard
Suite 130
Charlotte, NC 28211
www.movement.com/page.jacobson

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Want to keep your current home and buy another?
Keeping your current home allows you to make a ’non-contingent’ offer. This is a stronger offer and more likely to be accepted by the seller.
Perhaps you want to become a landlord, or maybe you want to keep your home for a different reason. Owning more than one home is common, and there are just a few key points to understand to expand your real estate portfolio.
The first thing to do is to apply for your new home’s financing early. Certain steps may need to take place to insure you are prepared for this process and having a completed application will help us walk you through your options.
One option may be to open a HELOC. This is a ‘line of credit’ on your current home. There are pros and cons to HELOC’s, but they make an effective option for people who need to come up with a down payment on their new home.
Another option is a cash out refinance. Depending on your loan’s variables, this can be a better option than a HELOC, using your existing home’s equity to obtain your new home.
If you plan on turning your current home into a rental, that future income can help you qualify for your new purchase. All you need is a long-term (1 year) lease in place. This does not need to happen before you go under contract on your new home. You simply need the lease in place before closing on your new home. Then, the tenants can move in after you complete your new purchase and move out.
Sometimes, people are qualified and prepared to buy a new home without needing a HELOC, cash-out refinance, or getting a tenant into their home. Whether you need to complete none or a combination of these steps, only an application will give us the information necessary to figure this out.

For more information, reach out to my contact information below.

Kyle Steele
614-313-3964
NMLS #2000695
Licensed NC, SC, VA, MD, OH & FL
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1. Could they do a HELOC (home equity line) to use as the down payment on the new home?
Yes, you can get an equity line and use it to buy another property. You must qualify with a current mortgage and a fully drawn line amount, even if you don’t need to draw the full line amount.

2. Would they have to move out of their original home and provide a 1 year+ lease to show mortgage payment covered/renter in place and supplement DTI (Debt To Income Ratio)
If they can’t qualify for both mortgages, and equity line, at the same time, they can get: a 12 month lease agreement, receipt of 1st month rent, and receipt of security deposit to be able to include 75% of the monthly rental income from the lease. This can be accomplished prior to vacating the property by having the lease time frame start shortly or directly after the closing on the new home.

3. Is there a better product or way to accomplish this?
They could also purchase the next home as an investment property and order a comparable rent schedule, which is an additional appraisal schedule that cost $200. They can use 75% of the amount the appraiser comes back with as the average rental monthly income.

Ray Patterson
Branch Manager
NMLS 182020
Cell: 704-507-0097
Fax: 704-706-3679
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The best option would be to pursue a HELOC and secure a lease with first month’s rent and security deposit.
The lease will help offset the debt to income and the HELOC funds can be used as a downpayment on the new home.
We would need to get into the details on the new home. A thorough CMA from you would help us determine market rent and if it could cover the current mortgage payment AND potentially the HELOC payment.
From this point, it would be a regular deal. Being a broker, we would source the most beneficial product from the borrower to complete the 2nd mortgage.
Please note that the borrowers will need reserves if they keep the current house. 6 months PITI on the investment and 1-2 PITI on the new house
The specifics are in the details, i.e., credit, reserves DTI etc. but this is my initial roadmap.
Marvin King
Mortgage Consultant
NMLS # 2430456
M 256-503-9233
P 256-503-9233
The Equity Exchange, LLC
NMLS # 2146351
600 Towne Centre Blvd ste 309
Pineville, NC 28134