Current home owners can still purchase a new owner occupied property with as little as 5% down. This 5% down payment can be gifted, saved or even borrowed if the applicant is strong enough, subject to insurer approval.
This is a great option for home buyers who are struggling to sell their homes, or who, due to a shortfall in equity are not in a financial position to sell their current home.
How is this possible?
Most mortgage lenders will use a percentage of reasonable rental income on the existing property to help debt service the costs associated with this home. This percentage can vary from one lender to the next and some lenders are more aggressive with their rental offset than others.
In many cases approval amounts will be lower than if they were to sell and purchase a new home. However much depends on the client’s mortgage and personal debt load, and what their current home can rent for in today’s market. For some clients, if their current mortgage payment is low and possible rental income is high, their maximum preapproval amount is not affected at all.
To prove rental income what is required?
All lenders will accept a signed lease agreement to confirm monthly rent.
Some lenders will also accept a market rent evaluation in lieu of a lease to confirm rent. This means we can still use rental income to help a client qualify even if they do not have the home rented out just yet.
What is a market rent evaluation?
A home appraiser will draw up a letter for the lender to confirm the estimated market rent on a property based on the size and location. This typically comes at a cost of $50-150 to the client.
If your home is sitting stagnant on the market or you have a sales clause offer that may fall apart, this option is worth exploring. Should you or your client want a second opinion to see if we can qualify to purchase without selling first, please do not hesitate to call.