By Craig
It's more difficult to sell a home these days, especially if you want to break even (or make some money). Many homeowners have turned to the idea of making their current home a rental -- thereby allowing them to buy their next home.
FNMA is making a rule change effective with loan applications dated 8/1/08 and after. The change is for a borrower turning their current home into a rental property when they are purchasing a new home to owner occupy.
FNMA will continue to permit 75% of the proposed rental income to be used to offset the current mortgage payment in qualifying IF there is documented equity of a least 30% in the existing property. This can be done with an appraisal of the property less the outstanding lien or liens.
You must also document the rental income with a fully executed lease AND a copy of the tenants deposit into the borrowers account.
If the 30% equity can not be documented then the borrower must qualify with the current mortgage payment on the home they claim is to be rented out AND the mortgage on the proposed new owner occupied home AND must have 6 months PITI in reserves for both properties.
As you know, guidelines & policies are changing rapidly in real estate. When an NBA coach sees his team getting beat underneath the glass they put in a big man to block shots and rebound. When they get beat on the 3 point line they put in some smaller good defenders etc... Fannie mae is getting beat but instead of the PICK & ROLL it is called the "BUY AND BAIL."
It goes like this... homeowner has a home he bought for 600,000 with 100% financing, payments are 3,500 a month. Home is now worth about 450. They decide to buy a new home for 300,000 which would cut their payments in half. Once moved into the new home, they stop making payments on the old home and let the bank have it back. The key to the deal is that when they apply for the new home loan they provide a "lease agreement" saying that somebody is going to "rent" their current home. That used to be all that was required...just provide the lease.
The homeowner is comfortably in their new home. Over the next few years while their credit is damaged they at least can stay in their nice new home which they got at a very good price. homeowner is happy... lenders and fannie mae take the loss.
So like the coach of the team, Fannie Mae got beat a few times and said he let's change the way we play so that people can't beat us that way any more.
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