Buying in Denver even if Your Home Isn’t Selling
If you’re being relocated to the Denver Metro Area due to a job transfer or found new employment and want to buy a home, but can’t until your existing home sells or you are upside down on equity, this is the most exciting message you’ll ever read.
Here’s why:
The Federal Housing Administration (FHA) allows you to purchase when you are vacating your primary residence and are going purchase a new primary residence. FHA allows you to rent your existing property and use the money received to offset the existing housing payment. In order to do so, one of the following must exist:
- Borrower is relocating with a new employer or being transferred by their current employer to an area that is not within a reasonable commuting distance (70 miles), rental income from their current primary residence may be considered. The following documentation must be provided to include rental income:
- A lease agreement signed by the borrower and the lessee/tenant for at least 12 months
- Evidence of the security deposit and/or evidence that the first month’s rent was paid to the borrower.
- Vacated property may have a maximum 75% LTV or less supported by a current appraisal that is no more than six months old or by comparing the unpaid principal balance to the original sales price of the vacated property.
In other words, if you can’t sell your existing property or you owe more than it is worth, you can rent the property out if you get a signed 12 month lease and have a security deposit check that you’ve cashed. You will need the following to make this happen
- Signed 12 month lease agreement (can be picked up at any office supply store)
- A copy of the security deposit check-front and back
- A copy of your bank statement (all pages) showing the deposit.
- Employment letter showing new job or transfer
For qualifying for a new mortgage payment, 75% of the gross rental income is used to offset the total mortgage payment. For example if your mortgage payment is $1,200 including principal, interest, taxes and homeowners insurance, and you collect $1,200 for rent. So $900 would offset the mortgage payment making the net amount of the debt to be $300 each month.
Rental Property Management
Whether or not renting your property was or is even on your radar, the reality is it isn’t as scary as it seems. Right in your local area are many property managers whose job is to find renters and manager your property. In fact, many real estate agents offer this service.
Their job is to find qualified individuals that can rent your property. They pull credit to verify no past evictions, perform a background check, and verify current and past employment as well as having the necessary funds before renting. They are on call 24 hours for emergencies; if something needs to be done to the property they find the necessary people to perform the service and do a drive-by of the property ever 30 days to check up on it. Property managers will help you set an appropriate rent and will collect the rent when it is due, take their portion (generally 10% of the rent) and send you the remainder.
Today’s Rental Market
I have Realtor® friends who do property management, that get up to 15 calls a day from people looking to rent homes. In today’s environment more people are interested in renting than buying, even when they can purchase and have a payment that is less than paying rent. Why not capitalize on this? The reality is, I know this is different for every market but the rentals I used to own would rent in a matter of a few days.
I like this idea simply for the fact that a rental can be very much like an investment account that your renters are helping to build for you. Plus rental properties come with many tax advantages, such as mortgage interest, repairs, paint and whatnot. Please consult with a tax professional about these advantages to see what qualifies.
If you have any questions about this article, don’t hesitate to give me a buzz at 720-515-8654.
