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How to get out of your underwater house and live to tell about it!!!!! Part Quattro.

Industry Observer with None

Desert Center Wild Flowers

Desert Center Wild Flowers

Three weeks ago I started on a series of blogs to go over the nuances of the underwriting guidelines where a home owner can purchase another home to be used as their primary and turn their current home into a rental or second/vacation home.

Today is the final installment.  I want to thank those of you who have taken the time out of your busy day to read my blog and to make comments.  I truly appreciate it.

As stated before the four possible conversion groups are 1.  Principal residence that is in pending sale status, 2.  Principal residence that is converting to a second or vacation home, 3.  Principal residence that is converting to an investment property under Fannie/Freddie Guidelines, and 4.  Principal residence that is converting to an investment property under FHA Guidelines. 

This week I will go over group 4 - Current principal residence that is converting to an investment property - FHA program guidelines.  It is important to go back and look and compare the guidelines for each group as each has a little wrinkle or wart you may want to pay attention too, as it could be the key to getting the deal done or not.

OK, now to the specific guideline issues.

If the current owner is converting their current principal residence to an Investment Property, FHA does NOT ALLOW any rental income from the property being vacated to be used to offset the mortgage payment on that property, except as follows:

•·         Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the FHA Homeownership Center with jurisdiction in the properties area (refer to: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ref/sfh2-21u for the applicable vacancy factor, copy and paste to brower) may be considered under the following circumstances: 

           •·       The borrower is relocating with a new employer, or being transferred by their current employer to an area not within reasonable or locally recognized commuting distance.  A copy of the fully executed lease agreement, with a minimum one (1) year lease term, from the date of loan closing, is required.  Evidence of the security deposit and/or first months rent being paid to the borrower is also recommended.

           •·       The borrower has a minimum of 25% equity in the current principal residence documented by a full appraisal or exterior-only appraisal (FNMA 2055).  The appraisal cannot be more than six (6) months old.  The equity may also be documented by comparing the unpaid principal balance to the original sales price of the property*.  Note*in a declining market area this may be a hard one to get by the underwriter.

FHA's rules are pretty simple but if you have the circumstances that fit, FHA may be the way to go

Of course all of the other guidelines must be met as well.  By the way these are the guidelines I offer, different mortgage companies or institutions may have similar guidelines or they may be different as they are adjusted to meet specific market risks.  These adjustments are called overlays.  Always check with your mortgage professional for details.

So this is it, the last installment.  If you would like me to write more about current loan guidelines please let me know with your comments.  Also if you have specific questions, shoot me an email and I'll do my best to get you the answers.

If you represent a buyer who is or you are considering purchasing a home in Arizona or any where in the US and want to be sure you are mortgage ready, I will be happy to help you!  It's much better to know than to guess in today's market.

If you already own a primary residence, second home or investment property, I can provide you with a no-cost mortgage review to help you to determine if refinancing may be in your best interest. 

Interest rates are still at their 2011 lows but will not stay this low forever.  Avoid future regret, don't you or your clients miss out on this opportunity to lock in truly exceptional financing.

By the way all the pictures I use were taken by me and may not be copied, used or distributed without my express permission.  Today's was taken on a trip to Southern California off of I-10 near Desert Center, last spring after a really wet winter.

Please call me at                 602-245-4288          or email me at DWeaver@OvationHomeLoans.com

Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

Well said. Considering the power of flowers, though, anyone reading about being underwater is probably under water, so maybe it would be good to end with some nice flowers, too!

Sep 03, 2011 02:53 PM
David A. Weaver
None - Buckeye, AZ

Thanks Jim,  Sometimes you just have to step back, take a deep breath, hear the birds and smell the flowers.  Gain some perspective and then get back to work.  There are options out there and every market is different.  Scottsdale is certainly different than Glendale and both are just a few miles away in Maricopa County.  Just as Mission Valley is different than Temecula for example.  Got to find what works for you and work it really hard.  Have a great weekend.

Sep 04, 2011 06:28 AM