Checking Out Your FHA Buyers’ Rental Income

Real Estate Agent with Re/Max Golden Empire

HUD has just published some new guidelines that will nix some sales effective immediately if there is any suspicion that the buyer is participating in a Short Sale deal and is simultaneously renting out their previous house.  If they sold their old house at Short Sale simply to take advantage of purchasing a similar or superior house for less, this is also an activity that the FHA will not condone by approving a loan.   The FHA will try to monitor this situation by looking closely at the sources of rental income.  The FHA may consider rental income only when the LTV of the vacated property is 75% or less.  This means that generally rental income will not become a part of the qualifying income used to qualify for the FHA loan.   It is ok for an FHA applicant to be renting out their previous home if they are current on the mortgage or if they have had to rent out their previous home in another city that is not commuting distance from their new location and are trying to Short Sale that distant property.   This new rule means Investors and their Agents will need to look more closely at the buyer's sources of income before accepting an offer from someone expecting to get an FHA loan.  You will find that deals fall through more frequently with FHA buyers, and there are seasoning issues that will delay closing in many cases.  This new rule is just another reason to be wary of FHA buyers if you are doing Short Sale flips.

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DRE CA.Lic. #01192175

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Comments (1)

Randy Stevens
Stevens Real Estate Services; Nextage Captex Realty - Pflugerville, TX


The 90 day seasoning requirement has be waived IN MOST CASES for individuals looking to purchase homes using FHA insured funds.  There are certain tests that the property must pass, however, in order to qualify for the waiver:

1. Arms Length transaction (no collusion)

2. No "flipping" activity exists within the last 12 months

3. Property was marketed appropriately ("and/or assigns" brings up red flags here)

4. Multiple documents for justification of price increase by 20% or more

5. Forward mortgages only (HECM and similar programs are not eligible)

This will last until February 1, 2011 unless extended or rescinded/modified by the HUD/FHA Commissioner.


Feb 01, 2010 05:44 PM