FHA announced the following description. This has been speculated recently and debated, but once FHA issues their Mortgagee Letter it becomes official.
This update from Mortgagee Letter 2008-25 establishes guidelines for situations where people buy one home with the intention of defaulting on their current residence which is known as "buy & bail." These changes delineate the circumstance in which an underwriter may include the income documented from a valid rental agreement for the current residence.
Here are the 7 things you need to know about these changes:
1. This is a temporary change, and effective as of September 19th, 2008
2. The borrower must be relocating to a new job location
3. The new home must be outside reasonable commuting distance from the current residence (UWs discretion)
4. The borrower must have a fully executed lease with at least a 1 year term from the closing date of their new mortgage
5. The borrower must document receipt of the security deposit and/or first month's rent
6. Current residence must have an LTV of 75% or less
7. The value of current residence can be proved with the following:
a. Appraisal no more than 6 months old, or
b. Original HUD-1 and current bank statement
Use this update and take the opportunity to reach out to your clients and make our team a resource of FHA information.
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