Real estate mortgages are confusing enough, but if you have financial obligations on other properties, it can be downright confounding.
Whether you are going to keep or sell your current property, you can still qualify for the mortgage you need. And it all starts by having the right knowledge and the right support.
Getting Qualified While Owning Other Real Estate
Important Term: PITIA
A common term for this topic, and one you’ll often see in other real-estate subjects, is “PITIA.” Essentially, this term refers to the total amount of money that will be required on a monthly basis to maintain homeownership. Many people simply reference the total mortgage payment, but as any homeowner can tell you, there are other costs involved. PITIA is a good summary of these costs, helping you estimate the total out-the-door costs of owning your home.
- Principle: The portion of a mortgage payment that goes towards paying off the loan. This will increase over time. (In early payments, principle is a smaller portion.)
- Interest: The interest that is added for borrowing money. Over the years, the portion of interest in the monthly payment will decline and principle will grow.
- Taxes (Property taxes): The amount that you’ll have to pay in property taxes for the home.
- Insurance (Homeowner’s Insurance): The cost of insuring your home, which will vary depending on many factors, including the value of the property.
- Association Dues: Many properties will not have association dues, but condos, townhouses, and gated communities may have this expense.
By using PITIA, you can have a better idea of how much it will cost to own your home. It will also be important when explaining issues of owning other real estate while searching for another property. You’ll also notice that this includes costs not associated with debt, such as taxes, so PITIA is a factor even if you have 100% ownership.
Considerations When Qualifying
If you own property with or without a mortgage, the status of that property will make a big difference on the qualification process. The PITIA of your current property will need to be considered by the lender, but they will approach each type in a different manner…
If you have an investment property, you will need to be qualified in accordance with policies related to rental income. The PITIA of the investment property will need to meet specific standards, and you’ll have to have minimum reserves to be eligible for the new loan. If there are multiple financed properties for the same borrower, the lender will need to make sure you meet certain requirements, which could include limits on the amount of properties you own.
A Second Home
If you have a second home, or are purchasing a primary property and converting your current principle residence into a second home, the PITIA of the second home (the one you currently own) must be considered in loan qualification. This total amount will be factored into your recurring monthly debt obligations.
Principle Residence Pending Sale
If your current principle residence is pending a sale but will not close before the new transaction, your lender will need to make sure that you meet many of the same standards as outlined above.
In addition to the requirements we have already listed, your lender will need to comply with a few other requirements.
If you are selling a mortgaged property, and the buyer assumes the rest of the mortgage debt without a release of liability for you, you will still have contingent liability. In this case, the lender is not required to factor this contingent liability as part of your recurring debt obligations. In other words, the PITIA from this property is not included in your qualifying process.
However, to leave off the PITIA the lender will need to verify that the buyer has at least 12-month history of making regular payments for the mortgage, without any late payments whatsoever. To document this, the lender can used various information, including evidence of an ownership transfer, a copy of the assumed agreement, or a credit report that shows consistent and timely payments.
If the lender is unable to obtain proper documents, then the PITIA for this property will still be included on your debt obligations, which can limit your borrowing power.
Buyout of Property Settlement
In some cases, you may need to use a property settlement buyout. This can be possible, but only when your interest in a property is bought by another co-owner (which is common in divorce settlements, for example). If the lender will not release you from liability on the property, you will have contingent liability. This means the new lender will have to keep the PITIA from this property on your qualifying debt obligations.
However, if the lender can get documents that confirm the complete transfer of the title to the other owner, the liability does not need to be considered when factoring your debt obligations. In this case, the PITIA for the previously co-owned property is not part of your financial obligations, at least for qualifying purposes.
Pending Sale of a Principle Residence
Finally, if your current property is pending sale, but the sale will not be complete before the new transaction, the current and future PITIA will need to be considered in qualification for the new mortgage. Essentially, the loan qualification will be processed as if you will continue to own both properties.
However, it is possible to have the old PITIA removed from your qualification profile. Fannie Mae will not require the current costs in qualification if you can bring specific documents. You will need to have both an executed sales contract for the residence and a confirmation that financing contingencies have been cleared. If you can provide these documents, the lender may be able to qualify you for a mortgage without the current PITIA factored into your financial obligations.
Dedicated Support for Your Mortgage Qualification
If you need a loan, but currently own another property, let our team guide you through the complex process. We’ll take a common-sense approach to your qualification, increasing your chances of landing the high-quality home you deserve!
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