It came to my attention this past week that there is a new trend call "buy and bail." It is due to a large number of people deciding to take advantage of this market to "buy-up." They document that they are leasing their previous home (which has negative equity), get into their new home and let their previous one to foreclosure. It is unfortunate that this fraudulent act will make it difficult for honest clients who need to move and can't sell their current home. Most lenders are now developing new guidelines for this.
IF THE PROPERTY HAS POSITIVE EQUITY: Most lenders will only use 75% of the rental income to offset the payment of the existing property. The equity of the home will usally be based on a computer appraisal conducted by the lender.
IF THE PROPERTY HAS NEGATIVE EQUITY: Most cases NO credit may be given to any proposed rental income and the borrower must qualify with the full payment on BOTH properties.
We need to keep this in mind as we talk to new clients and go back into to any Sellers that are trying to lease their home. Urge clients to update their pre-approval to make sure it is still valid.
Valerie Spicer
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