If you’re considering buying a new primary residence and want to use the equity from your current home for the down payment but haven’t yet listed your current home for sale, you’re not alone. Many borrowers in Metropolitan Detroit find themselves in this situation, and there are guidelines and strategies to help bridge this gap. In this post, we’ll start by discussing the guidelines you’ll need to meet for various types of home loans (FHA, VA, Conventional).
- Monthly Payment Support: The first key guideline is that your income should be sufficient to cover both the monthly mortgage payments on your current home and the new home, in addition to meeting minimum payments on other credit obligations. It’s important to note that monthly mortgage payments include property taxes, insurance, and association dues (if applicable), not just principal and interest.
- Financial Reserves: You’ll likely need to demonstrate financial reserves. These are liquid assets like checking, savings, money market accounts, or near-liquid assets like investment accounts and bonds. While specific reserve amounts are not often published by lenders, having more reserves is generally seen as better.
- Intent to Occupy: Lenders will scrutinize your intent to occupy the new home as your primary residence in Metropolitan Detroit. This is to ensure that you’re not engaging in mortgage fraud. You’ll be asked to draft a letter explaining your intent to occupy the new home and provide reasons for the move. Common reasons include a need for a larger or smaller home due to family size, proximity to employment, or a better school district.
Once you’ve assessed these guidelines and determined that you meet them, you can proceed with seeking pre-approval for your new home purchase in Metropolitan Detroit. In the next post, we’ll delve into down payment options and introduce the concept of mortgage recasting, which is often underutilized but can be beneficial in certain situations.
Stay tuned for more insights and strategies to help bridge the gap between mortgages in Metropolitan Detroit.