Recently Fannie Mae & Freddie Mac issued guidelines with the intent to stop buyers from conducting a "buy and bail" strategy, which applied to ALL Conventional loans. A "buy and bail" strategy is when a buyer purchases a new home using their current residence as a "rental property" to qualify for the new mortgage, with the intent of never leasing out their home and letting it go into foreclosure. Up until Thursday 9/18, FHA had not adopted any of the policies issued by Fannie Mae & Freddie Mac. But as of Friday September 19th, HUD issued new guidelines regarding these transactions and has provided a Mortgagee Letter with some of the changes to FHA loans.
There are only two exceptions in order for the borrower to defray the payments on their primary residence if it is being converted into a rental property. The two ways the rental income can be used is if the borrower meets one of the following two requirements; the borrower is relocating or the current primary residence has at least 25% equity. Attached you will find a copy of the Mortgagee Letter for you to reference.
Although this will limit the ability of some potential buyers, it will hopefully bring some much needed stability to the declining housing markets. Please feel free to contact us at Integrity Home Finance if you have any questions, comments or concerns about how this and other industry related news affects you.
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