Ok, not really, that was a joke. I can only imagine the extent of hate mail I would receive if I were truly offering actual "buy and bail" instructions or tips. I am simply providing the information regarding what terms you or your client will need to meet to qualify if you/they choose to retain their home and purchase a new one.....or bail on the old and eventually buy again.
'Buy and Bail' refers to the increasing number of home buyers providing misleading information about their intention to rent their current home which they, in fact, plan to vacate. In many cases, however, the true intent is not to turn the property into a rental at all. What lenders are seeing more and more is that these buyers simply abandon their former property, stop making their payments, and simply let it go into foreclosure. Although not everyone who is vacating one property for another has the intention to abandon their previous home, those who do have caused FHA, Fannie Mae, and Freddie Mac to take steps in order to prevent this activity and have deemed it to be fraudulent.
The following requirements must be met when a borrower is converting their primary residence into an investment property and looking to purchase a new primary residence:
Must be able to qualify with both mortgage payments unless they meet one of the following:
-The borrower is relocating with a new or existing employer
-The borrower has a loan-to-value (LTV) ratio of 75% or less
-Must be able to document an executed lease agreement of 1 year or more and must provide evidence of a security deposit and/or first month's rent.
Fannie Mae/Freddie Mac
-Must be able to qualify with both mortgage payments unless the borrower has a LTV ratio of 70%
-If 30% equity exists, 75% of the rental income may be used to offset the mortgage payment.
-Rental Income must be documented with a copy of the fully executed lease agreement
-Receipt of a security deposit from tenant and deposit into the borrower's account must be documented.
-Reserves of six months PITI (Principle, Interest, Taxes, Insurance payment) for both properties is required.
Will this prevent the buy and bailers from buying and bailing? No way, Jose, but it has absolutely made it a bit more of a challenge and will definitely curb those who can't qualify for both mortgage payments. There are also other options. For those that are underwater on their home and are looking to do a short sale or Deed in Lieu, there is hope!
Struggling borrowers who give up their homes through short sales or deeds in lieu of foreclosure will be able to obtain new Fannie Mae loans in two years instead of the traditional four. This new policy is designed to make foreclosure alternatives more attractive. There are some stipulations, however. To qualify for a new mortgage after the two-year wait, Fannie Mae borrowers must make a 20 percent down payment. Those who have lost jobs or have other extenuating circumstances can make a 10 percent down payment. Also, this program applies only to Fannie Mae loans. VA buyers do not need to come in with a down payment and only have to wait two years. FHA buyers currently require a minimum down payment of 3.5% and have to wait 3 years, except in cases of extenuating circumstances and under certain conditions. Owners who go through an actual foreclosure wait five years for both Fannie and Freddie, or three for FHA, but just like a short sale, they can contest that if extenuating circumstances exist.
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*Seek competent legal counsel and tax advice for any real estate transaction. Jessica Sulliman and Ashby Realty Group are not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit. Your Lender may not agree to the change of your loan and/or a Short Sale. With a Short Sale, there are no guarantees offered and we cannot provide legal advice. Seek legal advice.*
About the Author...
This article was provided by Jessica Sulliman, a Nationally recognized Realtor and Certified Short Sale & REO Specialist. Jessica has helped hundreds of people buy and sell their home.
Ashby Realty Group handles Arizona real estate sales, Arizona short sales, Arizona strategic short sales, Arizona pre-foreclosure sales, and Arizona foreclosures in the entire metro Phoenix
area. We specialize in the East Valley: Queen Creek
, Paradise Valley
, Apache Junction
, Gold Canyon
, San Tan Valley
at Merrill Ranch resort community in Florence
AZ. Serving all of Maricopa
and Pinal counties Arizona. Arizona Short Sale Realtor. Short Sale Arizona
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