Buy and Bail Protection

by Craig

One of the best ways to buy a foreclosure in this market is of course with no money down. think about it,  you put no money down and buy a home for let's say 100,000 that was selling for 200,000 a year and a half ago  - that's not just a good deal it's an amazing deal. USDA has 100% financing or "rural" areas. Yes that means you people who want to live in the city can not get this!  But they are even coming around to the buy and bail protection that Fannie and Freddie and FHA have already put into place.

So everybody seems to be falling into line on this policy - here is the exact wording from USDA...  

An increasing number of homeowners are attempting to purchase new homes but cannot sell their existing principal dwellings because of prevailing market conditions. Some homeowners are attempting to retain and rent out their existing principal residence, while at the same time trying to purchase a new principal residence. The homeowners attempting to rent out their existing properties are producing newly signed leases as evidence of income to offset the costs of maintaining the old residence and continue making payments on it. Increasingly, income from the new leases never materializes and the old principal residence goes into foreclosure.

Newly signed leases:

A newly signed lease has no historical basis to conclude that the income is likely to continue. Applicants who wish to purchase a new principal residence and retain or rent a residence must qualify with all mortgage liability payments. Income from newly signed leases cannot be used in debt ratio calculations. The exclusion of rental income will ensure the applicant has sufficient monthly income to meet all mortgage and liability payments. This applies to manual and automated underwritten loan files.

So basically if you want to buy a screaming deal out there right now but have not sold your home first - NO PROBLEM -  just make sure that your payment on your current home that is for sale and the new home mortgage payments added together are still something you can qualify for with your current income. IF not, sell your home first then find the screaming deal... if the deal is gone just stop close your eyes and listen  - I promise you that you will hear another deal screaming very close by.

Comments

[Jason E.]

Hi Craig, First off id like to tell you that I am a very young homeowner (20's), with a small family that is looking for a great investment. I currently live in Glendale and have been looking at houses around my area and I am blown away how cheap the prices are. I have a good credit of 700+ range but I dont have enough to put down another home, but do make enough to cover both mortgage payments. And the way I see the rental market must be screaming right now. If i could some how purchase another home without money down and rent my current home out for less than what the mortgage is and just cover the rest myself I could still be profiting from this, no? But with this hole "Buy and Bail" trend is this even likely, are investors even going to give me the time of day.
I noiced above you mention buying a home in "rural" areas could get you 100% financing. What exactly is concidered a "rural" area?. And if you could what are if any some of my options?

Jason.

[Craig]

Jason,
thanks for posting here - sounds like you are in a wonderful position with your age and mentality and understanding of good deals, cash flow, equity and buying at the right time... unfortunately the weather conditions around you are not so great. you might have the best kite in the world but during a storm it's hard to make it all work properly.

first of all if you make enough to "qualify" for both payments then you will be doing fine. Mind you i said qualify not make enough to PAY for both payments. big difference.

with high scores and low debt to qualify for both payments then you may be able to move out of your home and buy a new owner occupied home, rent out this current one and in 3-5 years you would have 2 great assets that ahve increased in value by then.

FHA is going to require you put down 3.5% of your price as a down payment and Rural housing will require 0 down payment. the website for rural housing is http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1

look around there and see - they don't have the best mapping system in the world but you sound smart and can figure it out to find out where exactly does "rural" end and NON rural begin

good luck and let us know how we can help you in the future.

craig

[Tony]

Reading on the buy and bail and I just ran into this problem yesterday. I own a home currently and purchasing a new home. Everything has gone through the bank and qualified with both mortgages and beat the debt to income ratio. I am using a VA loan (Prior military) and the lender has come back 2 weeks prior to our close saying they pulled comps in our area (Gilbert,Az) and our current house we live in is upside down. The say we are upside down roughly $40k which every single house in Arizona is. They do not want to close on the loan now because they say we could buy and bail even though we have qualified and can afford all payments under the DTI. I already have a renter that is looking to move in March 1st and have a one year rental agreement signed and sent with our documents to the lender. The lender can see that my wife and I make a great salary, have NEVER been late on any payment that we have and still believe that we are a buy and bail candidate. It's unfortunate that others stupidity is causing my family to lose the oppurtunity of upgrading to a much larger house. Is there any way around this??

[Ron]

Tony, unfortunately not -- unless you can find another lender willing to give you the loan. Restrictions are getting tighter by the month because lenders have been burned so much.

[What to do??]

I have a similar situation...sort of. My husband purchased a house before we were married, now he does not work and goes to school. We can make the payments by cutting back alot and having about $50 to spare. We were trying to find a way to reduce our expenses and houses closer to where I work(we currently live 100 miles round trip from where I work)go for 60,000 less than our current house. The payments would be $850 rather than $1500. I qualified for a loan with 10% down, I was upfront with the mortgage broker about what we were doing, is this fraud?? I don't know what to do??