Ask Judy O.: We own our home and want to upgrade to a larger one. How should we proceed?
Answer: If you are able to upgrade and purchase without selling your home first, a lender’s view of your qualifications for a new home purchase will include the debt on your current home. For a lender to use the rental income on a departing residence, then you must have a minimum 30% equity in the home (70% loan-to-value). If you do not have this equity position, you must qualify for the new loan carrying both the old housing payments and the new one. No rental income will be used to qualify in this case. Since lending guidelines keep changing – get clarification from your loan broker on this.
If you need more than your equity to upgrade and get into another home, the simplest way to go is to do a cash-out refinance or a re-fi with an equity line. It is important to find a loan without a pre-payment penalty. Bridge loans are rarely used anymore because they are too expensive. Again, your loan broker can provide you with those details.
Your ultimate goal should be to have your new home characterized as your primary residence – since the interest rates are lower than those for purchases of income property.
Finally, the other way to go, which could also be considered an upgrade, is to sell your home and rent while you look for a new home. This frees you up on many levels. The down side to this is the aspect of having to moving twice.
What question do you have? Use my Contact page and ask me a question and see your answer here on Distinctive Properties LA. Thank you for reading my post about how to upgrade.