One of the most recent scams that has evolved due a slow housing market is being referred to as the "Buy and Bail". This is where people buy one home with the intention all along of defaulting on their current residence!
Until now, homeowners were able to provide a lease agreement to offset their current mortgage payment and help them qualify for a new home without much scrutiny. Earlier this year, conventional guidelines addressed changes stipulating there must be 30% equity in the home to allow the new rental income to be used to offset the mortgage payment. But now a recent update from has also come from FHA! Going forward the circumstances in which an underwriter may include the income from the rental agreement for the current residence are as follows:
1. The borrower must be relocating to a new job location, and the new home is outside reasonable commuting distance from the current residence (UW's discretion).
2. OR, if the current residence has an LTV of 75% or less.
The value of current residence can be proved with the following:.
- Appraisal no more than 6 months old, or
- Original HUD-1 compared to current unpaid mortgage balance
This is effective immediately and may be a temporary change giving FHA time to further analyze this situation to determine whether permanent measures may need to be taken.
These changes apply solely to a principal residence being vacated in favor of another principal residence. It is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns.
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