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Real estate editor Maryann Haggerty and columnist Elizabeth Razzi respond to a question adapted from a recent online chat.
Washington: My wife wants to buy a house in a very specific area. The prices have crashed far enough so that we may be able to buy this house while renting out our original house. The houses at this magic price are smaller than my wife wants, although I think the housing layout is superior to our current house (more usable storage, such as an 800-square-foot attic). What concerns do you have about moving a family into a smaller house? Also, how easy is it in this market to communicate to a bank that neighboring houses rent at $2,000 more than our mortgage, so we want to count that income in our mortgage application?
Maryann Haggerty: If the location is that special and the price is that good, it shouldn't be very difficult to compromise on size. After all, many of us grew up in houses half or one-third the size of new places being built today.
The very popular Not So Big House books by architect Sarah Susanka can spark ideas on storage, space use, etc. So can the many shelter magazines aimed at small-space dwellers.
Both you and the kids will probably have to get rid of stuff -- small houses don't have space for private playrooms. But even if sharing a room with your bratty sister isn't always fun, it's supposed to build character, right?
Elizabeth Razzi: You're going to need more than a compelling argument for the lender. You need proof that you have found a renter. Jim Foley, manager of George Mason Mortgage's Bethesda branch, said new secondary market guidelines allow lenders to count only 75 percent of the rent as income to you. And they won't even count that unless an appraisal shows you have at least 30 percent equity in the home, a signed lease, and proof that the tenant's security deposit check has cleared.
MH: That sounds like a rational estimate of how much a landlord actually clears, after taking into account vacancies, maintenance, etc.
The next Real Estate Live chat will be 1 p.m. Friday.
