FHA has issued the following rules as September 19, 2008. Fannie Mae & Freddie Mac instituted similar rules on August 1, 2008:
To address increasing occurrences of the practice known as "buy and bail," FHA has issued Mortgagee Letter 08-25 - Converting Existing Homes to Rentals - Underwriting Instructions. FHA is instituting the following requirements for borrowers who purchase a new primary residence without selling their existing primary residence. The term "buy and bail" refers to a developing trend where borrowers purchase a new primary residence either closer to their employment or in close proximity to their existing primary residence. Once the new mortgage is closed, the borrower stops making mortgage payments on the original primary residence and allows the lender to foreclose.
The following requirements are effective for loans with case numbers assigned on or after September 19, 2008 and are temporary measures being implemented until FHA determines what, if any, permanent action is required:
~All borrowers must fully qualify with both mortgage payments, and no rental income may be used for the property being vacated.
~12 months' reserves - based on the PITI of the property being retained. (Fannie Mae & Freddie Mac are requiring 6 months PITI on both properties.)
~FHA permits two exceptions to the requirement above:
~When a homebuyer is relocating with a new employer or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance, rental income from the property being vacated may be used. A fully executed lease with at least one year remaining after loan closing is required.
~When the LTV of the property being vacated is 75% or less, rental income may be used. The LTV is determined by a current appraisal no more than six months old or by comparing the unpaid principal balance to the original sales price. In addition to using standard full appraisal forms, the appraiser may also use drive-by form 2055 for detached homes, or condo form 1075.
If you have questions or would like more information, feel free to give me call.
Janna Rankin Scharf provides a superior level of real estate services to home buyers and sellers in Coeur d'Alene and Kootenai County, Idaho. Visit www.JannaScharf.com to search for homes in the Coeur d'Alene MLS for anywhere in spectacular North Idaho.
No matter how grand or modest your real estate dreams may be, you can turn to me in confidence. Give me a call today and let me know what I can do to be of service to you!
Janna Rankin Scharf AB, GRI, CSP, CNS, CLHMS 208.651.9700
Does a person have to meet BOTH guidelines on the FHA Loan when renting your curret home and buying a new home?
My employer wants me to relocate to Virginia (I live in S, CA) and I was going to lease the house (1 year annual lease min) get a security desposit,,,,, etc. But the house that I want to lease doesnt have 25% equity. so would that disqualify me?
thanks