I recently had a transaction where the buyer provided a loan pre-approval letter. He expressed that he owned several properties, at least 2 of which were "upside down" (under water), and one of which was his primary residence. It is unusual too get an approval for a new purchase if your current home is upside down, let alone having another rental that is also upside down. However, because the borrower was upgrading his current home - going from a 1950's 3 bedroom fixer in a lower end neighborhood, to purchasing a 2006 built home with 4 bedrooms and 3 baths in a higher end neighborhood - he qualfied under FHA guidelines. I am not an FHA expert so I will not go into the guidelines, but suffice it to say that it can be done if your income, documentation and situation fits in this niche. Check it out with your local FHA specialist.
So I decided to apply this to all potential short sellers - I thought, what if they have never missed a payment but think that short selling is the only way to get to the larger, nicer home they need for their growing family? And they have the income, documentation and situation to support it? So now I check out every potential short seller for the possibility of retaining the current property as a rental, then purchasing the new home they need, and let the rental income payoff the large loan on the rental. There may be a cash-flow negative but if the numbers work, it can be a bettter alternative than the damage to their credit from a short sale. In certain circumstances, it may also be possible for them to get a loan modification first to reduce the PITI, so the rental income covers the full PITI, and there is no monthly negative to carry. And eventually they will have equity in the rental to enjoy in the long term. In this case, it's truly a WIN-WIN! Check it out! With enough information and the right circumstances, anything can happen. And you just might end up with very happy clients for life!
If you or anyone you know is in a hardship situation, feel free to have them contact me for a free consultation. There are many considerations that should be reviewed before making the important first step into your financial future.
Stephanie Sabo, The Realty Chick
27 years in Real Estate, 3rd Generation Real Estate Broker, serving the San Francisco Bay Area
800.590.1544
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