FHA “Buy and Bail” Transaction Rules
Apparently the though of buying a new home and letting your old one go has crossed the mind of a few people recently. Who knew… Until September 19, 2008 when FHA released Mortgagee Letter 2008-25, they didn’t have a formal policy on this practice except that you had to qualify for the mortgage either by qualifying for both payments, or having a valid lease.
What changed? Well when there is a conversion of a primary residence to rental one of the following must be the case.
1. They need to qualify based on both payments. No credit will be given to the borrower for any “rental” income the receive from the previous property. This is the easiest way, but also the hardest. Since there is no other qualifier than simply affording the two payments it makes it clean, yet most FHA borrowers do not have the income to do this.
2. The current residence must have a loan to value under 75%, determined by an appraisal less than 6 months old, or a HUD-1 from the purchase.
3. The borrower is relocating due to a new job place. For this, the new job must be further than a reasonable commute at the underwriters discretion. So make sure it is more than 10-15 minutes guys. Try a couple of hours, think the home is in a new state. The borrower must have a fully executed lease which is for at least 12 months past the closing of the new house. They borrower must document the receipt of the security deposit, or first months rent from the renter.
