Question on sale of current home, purchase of home next door, and purchase of move up home. (tenants, appraisal)

[Brabus42]

I've been searching the web for hours and this forum keeps showing up in my search results so figured it would be a great place to ask my questions.

My wife and I have been trying to navigate the crazy market in the East Valley. After submitting 9 offers and not being accepted we decided to sell our home (get equity out to put larger down payment and make ourselves more appealing to seller) 45 days ago I put an offer in on a shortsale for the house next door to me. My Neighboor was days away from foreclosure and I submitted a low offer. My thought was we could move into this house until we were able to find a new home and then either rent it or sell. We hadn't heard anything back from the bank and decided to find a short term rental so we could sell our home. Also just to add my neighbor is actually a renter. The owner of the property has been collecting rent and not paying the mortgage. So I potentially have a renter in place with the house next to me.

As luck would have it the last short sale (not the one next to me but the one we want to move up into) fell through with the original offer and we were the second in line. Keeping in mind that we signed a 60 day lease on the rental house and already paid first and last month. I am about 4 weeks into the move up short sale and haven't heard back from the bank yet.

I put my current home on the Market and sold it this month. I just heard back from my Realtor that the short sale (next to me) was accepted by the first mortgage and they are waiting to hear back from the second. Now that I don't need this as a primary residence I'm thinking I could purchase it and flip or use it as a rental because there is already a tenant in place with 4 years of payment history with the current owner.

The offer I submitted on the house next door is a 5% conventional and the short sale I submitted was FHA.

Here are my questions:
1. From everything I'm reading in order for FHA to accept the rental income you need 30% equity or tax returns showing the rental property. I won't have tax returns. If my offer is accepted I will have 30% equity because of what my house just sold for. Can someone explain if I've only had the house for maybe 30 days if that matters as long as it appraises for 30% more then what I owe? Are there any other items I should consider?

2. If my move up home gets accepted by the bank how do you think they will look at this situation with the house next door? I understand the laws put in place so people don't dump the house they're living in but that's obviously not the case with me because I'm buying the one next to me not trying to rent mine.

3. I understand there are new laws that you can't evict a tenant if you're not using the property for primary residence. They are month to month tenants with no lease. If I wanted to just flip the house what would you recommend? Can I require them to be gone before I would close? ( I have a friend with a rental property in the area they could move into)

4. Anything else I should consider that you can think of?

I'm just trying to figure out if this house next to me will mess everything up with the house we want to move into. Im not sure if I c
an qualify for both mortgages. It would be really close to what I'm pre approved for so trying to make an informed.

Also apologize for format of post. I'm using my iPhone and am not good at typing with it yet.

Thank you.

[Zippyman]

Originally Posted by Brabus42

I've been searching the web for hours and this forum keeps showing up in my search results so figured it would be a great place to ask my questions.

My wife and I have been trying to navigate the crazy market in the East Valley. After submitting 9 offers and not being accepted we decided to sell our home (get equity out to put larger down payment and make ourselves more appealing to seller) 45 days ago I put an offer in on a shortsale for the house next door to me. My Neighboor was days away from foreclosure and I submitted a low offer. My thought was we could move into this house until we were able to find a new home and then either rent it or sell. We hadn't heard anything back from the bank and decided to find a short term rental so we could sell our home. Also just to add my neighbor is actually a renter. The owner of the property has been collecting rent and not paying the mortgage. So I potentially have a renter in place with the house next to me.

As luck would have it the last short sale (not the one next to me but the one we want to move up into) fell through with the original offer and we were the second in line. Keeping in mind that we signed a 60 day lease on the rental house and already paid first and last month. I am about 4 weeks into the move up short sale and haven't heard back from the bank yet.

I put my current home on the Market and sold it this month. I just heard back from my Realtor that the short sale (next to me) was accepted by the first mortgage and they are waiting to hear back from the second. Now that I don't need this as a primary residence I'm thinking I could purchase it and flip or use it as a rental because there is already a tenant in place with 4 years of payment history with the current owner.

The offer I submitted on the house next door is a 5% conventional and the short sale I submitted was FHA.

Here are my questions:
1. From everything I'm reading in order for FHA to accept the rental income you need 30% equity or tax returns showing the rental property. I won't have tax returns. If my offer is accepted I will have 30% equity because of what my house just sold for. Can someone explain if I've only had the house for maybe 30 days if that matters as long as it appraises for 30% more then what I owe? Are there any other items I should consider?

2. If my move up home gets accepted by the bank how do you think they will look at this situation with the house next door? I understand the laws put in place so people don't dump the house they're living in but that's obviously not the case with me because I'm buying the one next to me not trying to rent mine.

3. I understand there are new laws that you can't evict a tenant if you're not using the property for primary residence. They are month to month tenants with no lease. If I wanted to just flip the house what would you recommend? Can I require them to be gone before I would close? ( I have a friend with a rental property in the area they could move into)

4. Anything else I should consider that you can think of?

I'm just trying to figure out if this house next to me will mess everything up with the house we want to move into. Im not sure if I c
an qualify for both mortgages. It would be really close to what I'm pre approved for so trying to make an informed.

Also apologize for format of post. I'm using my iPhone and am not good at typing with it yet.

Thank you.

You are not likely to get both loans. 5% down is owner-occupied financing, not investment property financing. If you close on the house next door, your FHA loan deal will get terminally kinked.

The right way to do the deal is to purchase the house next door with 20% down. You'll need to have enough income on your current tax returns to cover both mortgages without going over the FHA guidelines, not counting any income from the rental.

My suggestion is to take and *keep* whichever home gets full and final approval first, then walk away from deal #2. Short-sales are a crap-shoot, the lender (s) have the right to come back and ask for more money even if the seller "accepted" your offer, and they can dawdle indefinitely before accepting an offer. I purchased two short-sales over the past year, and they both took a full year to close.

No lender is going to believe you have 30% "equity" in a house you just bought. The purchase price is the value, even if you believe you could sell it for more. The short-sale lender is likely to ask for more cash at the last minute because of the recent "comp" in the neighborhood, which is ironically, your own home. Don't get greedy & end up sleeping in your car, pick one and close the deal.

[Brabus42]

Thank you for the response. I appreciate the information.

I have already found a short term rental and moved in so we're good with not sleeping in the car. I understand what you're saying, but if you could indulge me in the hypothetical. If this house next to mine is accepted at the price I offered and I put down 20% instead of the 5% would FHA on my "move up home" possibly accept that in fact the comps put the home (30+% equity) over what my offer is, or what I would owe if I bought it? Please understand I know this does not sound legitimate. Regardless if you believe it or not, my not being factual will only waste your time and mine as well so if you could just assume what I'm saying is true.

My house that sold had an FHA Appraisal done and there have since been 3 other homes that have sold. We'll 2 others, and 1 closing next week. Each of these homes (including mine) are above what would be 30% equity if the price I offered is in fact accepted. (The primary bank has accepted my offer, just waiting on the second)

I understand on taking which ever is first but that doesn't make sense based on what our situation is. We are looking to move up, not lateral. The "move up" home is more then twice the size of the one I just sold and the one next door. I'm solely trying to decide if I should try and close the house next door and turn it into a rental and/or flip and make a considerable profit, while waiting to see if the "move up" home offer gets accepted.
Just looking for advice in this scenario.

[Zippyman]

Your lender will not give you any credit for "instant equity" , not happening in 2012. If the appraisal comes in higher, the underwriter will lower the value to the purchase price. 20% down is only your cash brought to the table.

If there are other recent comps @ 30% over your offer price, you can expect to get held up for more cash at the last minute. Part of the delay in getting short-sale approvals is because lenders are appraising and re-appraising properties right up until the approval letter is sent. Nothing and no deal is final until you have letters from both lenders in your hand, and even then *you* will have a limited time to perform, or the deal goes away.

I'm not saying you are incorrect about having instant equity, it's likely you would, but I haven't seen a lender willing to lend based on that. Cash is the only thing that matters to them

[Brabus42]

Appreciate it. I'd appreciate feedback from anyone regarding if you believe I would qualify for the above scenario.

My Gross (w2) is $113,000. House next to me is $115,000 (figure 20% down on that so under 100k for the loan) The short sale offer is $280000 although would like to figure $300k based on comps. I have zero debt, no car payments, no loans, nothing.

If I closed on the short sale next to me would I qualify with FHA for the move up house? I figure the house next door will be around $600-700 a month payment.

Thank you. (I'm waiting for a call back from my broker but wanted to see what anyone here thought.

[rjrcm]

If you no longer need the house next door, then why not just cancel your offer? Unless you did something non-standard, the standard contract with short sale addendum in AZ would allow you to cancel prior to full approval of the sale with no penalty. Or do you really want it as an investment property anyway?

Regarding your point #3 in the OP, the law about not evicting only applies to homes that are foreclosed. A short sale is not included. Since the tenant is month to month, you would only need to provide a 30 day notice.

[Brabus42]

I want to either purchase it as a rental property or flip. Spoke with my broker and everything should work out. Thanks for the info.