As a mortgage person in the current wild and wacky real estate market, I sometimes get clients who want to buy and bail. So what's a buy and bail?
The call goes something like this:
"Hello, lovely mortgage person? This is Babs ( Buy and Bail Soon). My house is worth $175,000, but I owe $300,000. Since I will never be able to repay this, I am going to walk away."
"But first, most lovely mortgage person, you will get me a loan to buy a house just like mine, which is only down the street, and selling for $175,000...?"
"You can get me this loan while my credit is still good, before I walk away. My payment will go way down, and we can just tell the bank we are going to RENT my old house."
"Wow. Am I brilliant or WHAT? Buy the same house cheaper, bail out of the old one afterwards"
(I love the way they believe they are the first person EVER to think of this)
Okay, this has created a new mortgagespeak term: The departing house. And there are RULES in place so banks don't get stuck in schemes like this:
If your home is in a negative equity position, the lender would
•1) Force you to qualify for the new home without using the rental income from the old home
•2) If the loan on the old home is adjustable, the underwriter has the ability to caluclate the payment on that house at the highest possible amount after adjustment (even if the loan is not adjusting in the near future)
•3) If there is an equityline on the old house, the payment will be calculated at 1% of the amount of the equity line....even if the real payment is far less.
Even if these stiff requirements are met, without at least 25% to 30% equity in the old house, most lenders will decline the loan.
Why would they do that even if people really do plan to rent their departing house out and can prove it????
Because in the current lending environment, everyone is considered guilty (whether proven innocent or not).
Everyone is considered a potential foreclosure. And can we blame them?
Written by Janet Guilbault, Mortgage Banker/Broker Based Out of the San Francisco Bay Area
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