ARE YOU PLANNING TO RENT YOUR PRESENT HOME WHEN YOU BUY ANOTHER HOME?
We have found that many home purchasers like to keep their present homes as rental properties when they purchase a larger homes for their family residence. In the past, this plan has been easy since mortgage financing posed no problems.
The market has changed and new underwriting guidelines must now be considered when a home buyer plans to convert the current home into a rental. Check with your lender to make sure you will qualify for financing.
FHA has issued new underwriting instructions which may be found at:
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc
Under the new guidelines, an owner must qualify to cover both mortgages without considering rental income. There are two basic exceptions. The first is when the home buyer is relocating due to employment beyond a reasonable commuting distance from the present home. In the relocation situation, underwriters will consider an executed lease of at least one year's duration. The second exception is where the loan-to-value ration is 75% or less on the home to be rented.
If you need advice on how the new requirements may impact your personal mortgage financing, contact your lender. Be very sensitive to these requirements when the mortgage on the present home was originated between 2005 and 2007.
SEE FHA MORTGAGEE LETTER 2008-25
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