FHA Buy and Bail Rule

FHA Buy and Bail Rule for
Converting Existing Homes to Rentals

FHA Buy and Bail Rule  (FHA MORTGAGEE LETTER 2008-25)
Because of the recent increase in homeowners purchasing another home and claiming they will rent their existing home then allowing the existing home to go into foreclosure; a new term has emerged "Buy and Bail"

Make no mistake;
Buy and Bail is FRAUD and violates state and federal laws with severe penalties.

To halt Buy and Bail fraud FHA and Fannie Mae have enacted new rules.

FHA now requires buyers who are purchasing a home and converting their existing home to a rental either qualify for both loans or have 25% equity in their present home.  Fannie Mae previously instituted the same rule.

Exceptions:
Relocations: The 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.
 
A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year's duration after the loan is closed is required.  FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month's rent was paid to the homeowner.

Azmortgageinfo and Mike King will continue to blog, educate and help home buyers and the community with all the updated rules and regulations.  If you have a mortgage question or need advice please contact us today.