Q & A with Dottie Herman

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Q1 - I recently went to contract on my house and we are waiting to close in a few weeks. We had two mortgages and a lot of credit card debt. We definitely are not in the position to buy something else as we do not have the money for a down payment. Will we have trouble securing a rental as we are sure our credit scores are low?  

A - The criteria for rentals are based on the landlord's preference and they will check your history and income in most cases.  So yes, it will be probably be considered, and depending on your particulars and the requirements of the landlord, you may find some challenges. In general, landlords are more interested in your history of payment, knowing that you are reliable and have made timely payments in the past. They may not look at your debts as closely, but make sure you point out that since you no longer have the two mortgages or house maintenance expenses, you are able to handle the rent.

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Q2 - My wife and I are looking to buy a second home and we are wondering if the lending rules are different than for a primary residence. We are not set on a location yet but we are thinking someplace in Florida.  

A - Second home mortgages vary slightly from that of a primary home loan.  The major difference will be the amount of mortgage you can receive as a percentage of the purchase price. Plan to make at least a 25% down payment.  Most second home loans will carry the same rate as primary home and the qualifications based on income are the same. The lender will require that you have strong cash reserves in the form of savings and investments.

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Q3 - I am looking to purchase a home. I recently read an article stating that 15 year loans are becoming much more popular. Should I take a 15 year loan or a 30 year loan? Are there pros and cons?

A - A 15 year loan will save more than 1/2 the interest of a 30 year mortgage, you will build equity faster, and be debt free in 1/2 the time.  The only con to a 15 year mortgage is that it generally has a monthly payment that is about 1/3 higher than that of the 30 year loan. If you can afford the higher payment, it is the way to go!

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Q4 - My wife and I are currently in financial trouble. She recently got let go from her job and we can't afford our mortgage currently. Our home is worth about 250,000 since the decline in home prices, but we owe $350,000 on the home. Can we still sell it before we get into more financial trouble?  

A - You can sell your home but will need the cooperation of your present bank.  When you sell a home for less that the amount owed on the mortgage it is called a short sale.  In today's market banks are sometimes willing to take a loss on the mortgage amount owed in order not to conduct a foreclosure.  The foreclosure process can be expensive for the lender.  Unfortunately, most lenders do prefer you to keep paying the existing loan and often will not allow a short sale unless you are behind in your mortgage.  Your first step is to call your lender and inquire as to their policies regarding a short sale. Another option is to consult an Attorney who specializes in these types of transactions.

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If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com

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