Buy Primary Residence When You Already Own One

Are you looking to purchase a new primary residence?  If you already own a primary residence that you are not selling and it is located in the same geographic “marketplace” as the new primary residence you are purchasing there are 2 important steps you will need to take.  In order to obtain mortgage approval for your new home you will need to define your motivation for buying and your intent for your old primary residence.  It is important to note that if you are short selling your current home you will may not qualify for a new mortgage for a period of years.

STEP 1 – Define Your Motivation:

A buyer that is buying a new primary within the same marketplace as their current primary residence must be able to define what the motivation behind buying a new primary residence is.  The buyer must be able to show that there is a tangible reason behind the purchase of a new primary residence.  If they cannot do this the purchase will be considered an investment purchase which may require a larger down payment and a higher interest rate.  Typical acceptable motivational reasons include:

  • Purchasing a larger primary residence (larger than the current primary residence)
  • Purchasing a home significantly closer to a place of employment (closer than the current primary residence)
  • Purchasing a home with additional room to accommodate for current family size and/or a new additional to the family
  • Purchasing a smaller home after family member leave the home and a large home is no longer needed (smaller than the current primary residence)

STEP 2 – Define Intent for Current Primary Residence

When a homeowner is buying a new primary residence in the same marketplace that their current primary residence is in, that homeowner must explain what their intent is for their current residence if they are not selling their current primary residence.   The mortgage company funding the new mortgage will need to document that the buyer is not “buying and bailing.”  Buying and bailing refers to purchasing a new primary residence and either short selling or foreclosing on a current residence.  This is not allowed.  Typical acceptable intentions for a current primary residence:

  • Keeping the current residence and renting it out
  • Selling the property provided there is enough equity in the property to avoid doing a short sale

One other important item to keep in mind is that unless the buyer has at least 25% equity in their current residence (the one they are vacating) the buyer must qualify for their new loan including both their new mortgage payment and the mortgage payment on their current residence as debts against them even if they are renting their old primary residence out.

By Jeremy House

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