FHA CHANGES RULE TO ADDRESS “BUY AND BAIL” PURCHASES
FHA LOANS, INDUSTRY NEWS, TIPS FOR BUYERS, TIPS FOR SELLERS
October 22nd, 2008
One strategy home sellers occasionally choose, to buy another home despite being unable to sell their existing home, is converting it to a rental. This will be more difficult to accomplish with a new rule change by the Federal Housing Administration (FHA). FHA insures loans underwritten to their specifications.
Lenders will no longer be allowed to count rental income on the house you are bailing out of to qualify for a loan to buy your new choice of digs. Basically, you must qualify to carry both mortgages on both homes without the benefit of claiming the rental income. Apparently, some buyers that over-bought have been purchasing more affordable homes, then allowing their previous home to go into foreclosure. This is dubbed “buy and bail.”
Another reason cited by FHA administration officials for implementing this rule change is the abandoned property that is foreclosed upon, could adversely impact value of nearby properties that may be FHA insured. FHA only insures owner-occupied principal residence purchases and not investment properties or vacation homes. They also insure loans for 1-4 units, as long as the buyer occupies one of the units.
The new rule took effect September 19 under a temporary order. After further study, FHA will decide whether it should become a permanent rule change.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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