Quoted:
I'll try to make this short and not too complex.
My wife and I and 2 kids live in a small condo. We are $20,000 underwater, but can easily afford the mortgage. Outstanding is $75,000.
We want to buy a new place, and keep the condo as a rental, rather than take a loss at market prices.
My wife's credit score is 770ish, she is self employed, does part time work from home. Makes about $30k, give or take.
My credit score is 790ish, I am an engineer at an automaker, and get paid a decent white collar (not management) salary.
We are working on a HARP II refi on the condo, to lower our payment even further, to around $360/mo.
Now, in terms of getting a future mortgage for a new house, in terms of getting good rates, what is the smartest way to go?
- Refi condo in Wife's name, mortgage on new house joint?
- Refi condo joint, new house mortgage joint?
- Refi condo in wife's name, new hosue mortgage in my name?
Does it matter much?
Blood_Donor,
If you can do the HARP 2.0 refinance and do the mortgage in only your wife's name, that'd probably be the best way to go. You obviously need to make sure the loan is approvable using only her income, and HARP 2 allows it. I know with FHA Streamlines both borrowers on original loan need to be on new one.
Now what this does for you: You can buy a new condo, or house, using only your credit and income to qualify (wife will still be on title and retain her ownership interests in new home). Her liabilities (new mortgage via HARP) won't be considered in your application. Rates are best for primary residences, then second homes (spend 1/2 the year there, don't rent it), then lastly investment properties. This is based on how likely you are to walk away from your home (primary=least, rental when you have a free-and-clear home=high)
One thing to consider is if you have individual credit card accounts/car payments, etc...if every account and card is joint, it won't matter. I'm not sure if you would see a huge benefit down the line, because although you would be putting the monthly condo payment onto her list of liabilities (say, $1,000 after taxes, homeowner's insurance, and condo fees added in), you're taking out $2500/month of income. Now, if there's debt or liabilities distributed individually, this would make more sense.
Basically, if everything is joint, it won't matter, because you'll be buying a new primary residence down the line, and have to include the joint accounts whether you use one or both incomes. If it's individual, you'd probably be able to qualify for a higher loan amount to purchase.
Do be careful about getting uber aggressive deducting maintenance costs the year before you buy on tax returns, I've seen people cut their income on paper by 25% ($10,000 in maintenance costs for past 3 years on a home renting for $500 a month?! Don't be him) because they'd gone rambo on rental expenses and not told me.