Homes and Mortgages in Minnesota

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Let Us Give You Some Suggestions and Options in Minnesota

At Minnesota Home Rentals we know that since the housing bubble burst, thousands of homeowners have found themselves upside down, or paying more for their homes than they are currently called for on today’s market.

If this sounds all too familiar, you’re not alone.

It has been estimated that over 11 million homeowners are finding themselves under water with their mortgages, according to a recent article published by Time Magazine, and that number continues to climb each day.

If you are in the same situation as many other Americans, and you find that you need or want to move, you maybe trying to figure out how to do so without losing anymore of the money you worked so hard to earn.

Three common strategies for doing so include (note: some are better than others!):

1. Short Sales: A “short sale” occurs when a bank agrees to let a borrower sell their house for less than the outstanding mortgage, then forgives the rest of the debt. Banks may be willing to do this in scenarios where, by their calculations, they stand to lose more money by going through a foreclosure process than they would by doing a short sale. However, part of qualifying for a short sale involves submitting a “letter of hardship” that explains why you can’t continue to make your current mortgage payments or pay the difference between your home’s sales price and your outstanding mortgage balance in the event of a sale. Simply wanting to buy another house, or “needing” to move for reasons that are essentially a matter of personal choice/preference, generally won’t cut it.

2. Buying a new house before walking away from the first, or ‘buying and bailing’ (note: Minnesota Home Rentals does NOT recommend this option): The term “buying and bailing” describes homeowners who walk away from their current house with its upside down mortgage, but purchase a new house at a better price and lower interest rate before their credit tanks. These homeowners typically tell lenders that they will rent out their old house (sometimes producing fake rental agreements), but never actually find a renter, and stop making mortgage payments on the old house as soon as their new house closes. The problem with the “buy and bail” is that lying on your loan application (for example, about having a renter when you actually don’t) and producing false documents is mortgage fraud, which is a federal offense, which, according to a recent FBI warning, is punishable by “up to 30 years in federal prison or $1,000,000 fine, or both.” Besides, there are better solutions to the dilemma you may face.

3. Renting out your current home before buying another: Renting your house and buying another may be easier than you think. While lenders have tightened their guidelines surrounding this practice due to the recent spike in “buy and bail” transactions they’ve seen, if you have a fair amount of equity in your home, this may be a viable solution. Here are typical lender guidelines for renting your current house, then buying another:

-You must qualify for both mortgages, which makes sense, because you’ll be paying two mortgages. A central issue is whether you’ll be able to count your rental income from the current house in your income to debt ratio. If you have at least 30 percent equity (for conventional loans) or 25% equity (for FHA loans) in your current house, you can include rental income on your mortgage application.
-You must produce a signed lease on the current house, typically for a one-year term. The lender may require that the renter has already moved in.
-Some lenders require applicants to show that they have cash reserves to pay for the mortgages for 6-12 months.

If you are fortunate enough to have a good bank account and 30% equity in your current home, or your income can accommodate two mortgages, renting out your current home before you purchase another, is not only a viable option, it’s also a sound investment.

Obviously, there is a lot to consider, and being in the position of paying more for your home than its worth is extremely stressful, but you do not have to go into the fray alone.

Minnesota Home Rentals will help walk you through all of your options and will help find you the perfect renters and/or new home. Take a deep breath, we will fix this together. But first you have to call 1-612-293-5154… why wait, do it NOW!

 

 

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