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Carver Communications - Index

Carver Communications - 1.1.09 - Index

By Jack Shull
Affiliated Bank Mortgage
Guideline Changes to the
Conversion of Existing Principal
Residences to Rentals
It used to be a simple process if a purchaser
wanted to lease a previous residence
prior to purchasing a new primary residence.
In doing so, the lease would fully or at least
partly cover the debt service on the prior residence
which would allow for easier qualifying
on the new purchase. It is not so any
longer:
On new FHA and Conventional mortgages,
such a practice has changed if a previous
principal residence is being converted to
a rental.
FHA:
HUD or FHA has observed an
increasing number of homeowners who have
chosen to vacate their existing principal residence
and purchase a new residence. HUD
is concerned that some homebuyers in the
transactions may attempt to provide misleading
information regarding the rental income
of the property being vacated and wants to
prevent the practice known as “buy and bail”
where the homebuyer purchases, for example
a more affordable dwelling with the intention
to cease making payments on the previous
homestead, now the rental.
For FHA, as of September 19, 2008,
the borrower must fully qualify with the current
house payment per HUD Mortgagee
Letter 2008-25. The only time rental
income can be considered on a vacated primary
residence would be on relocation with
a new employer, a transfer by the current
employer or when the borrower has 25%
equity in their current residence. The 25%
equity position must be verified with a full
appraisal (2055 exterior is acceptable).
FHA recommends that underwriters also
obtain evidence of the security deposit and/or
evidence of the first month’s rent being paid
to the homeowner. There are no exceptions
to this policy for FHA.
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January 1, 2009 REAL ESTATE NEWSLINE 35
Conventional:
Fannie Mae will continue to permit up
to 75% of the rental income to be used to offset
the mortgage payment in qualifying if
there is documented equity of at least 30% in
the existing property. This 30% equity must
be provided by a Broker Price Opinion
(BPO), Appraisal Valuation Model (AVM) or
an appraisal. When in doubt an underwriter
will request an appraisal.
The rental income must be documented
with:
1) A copy of the fully executed lease
agreement; and
2) The receipt of the security deposit
from the tenant and deposit into the borrower’s
account.
If the 30% equity in the property cannot
be documented, rental income may not be
used to offset the mortgage payment. Thus,
both the current and proposed mortgage must
be used to qualify the borrower and 6 months
total payments for both properties is required
to be in reserves.
Jack Shull with Affiliated Bank
Mortgage and Sean O’Donnell of Colonial
Bank Mortgage, will be presenting a slide
show to update realtors and Builders on the
new FHA requirements. Jack can be reached
@ 215-6644 and Sean at 860-7783
Congratulations to
Rick and Mavis Brown
on your 40th
wedding anniversary
December 28th!!