Tuesday, January 13, 2009

New Restrictions on Rental Income in Qualifying

The decrease in California home prices has created the opportunity for buyers to purchase homes they couldn't formerly afford. However, since this is not a market that is beneficial to sellers, they also would like to keep their current home and rent it out. In the past, these homeowners were able to offset the cost of the old home with the rental income and still qualify for the new homes. New guidelines are going to make this harder to do going forward.
With home prices dropping, many people are seeing homes in their neighborhoods selling for significantly less than they owe. A trend of "Buy and Bail" has emerged. People would buy a new home, show a rental income on the old home, then once they have the new home financed, they allow it to foreclose. In order to prohibit this practice, Fannie Mae and Freddie Mac have new guidelines for qualifying if you are planning to rent out your existing home.
Both agencies are requiring homeowners to show a 30% equity in the property they are going to rent. If they cannot, they will have to qualify for both homes and have 6 months in reserves for both mortgages. Even if they equity requirement is met, they will still have to have a valid lease for 12 months and be able to show that the deposit has been cashed. At that point, 75% of the rent can be used in qualifying. FHA has similar guidelines. They are requiring a 25% equity stake. But there is no reserve requirement.
This is will impact relocation financing, investment financing and those who would like to move, but are upside down in their home value.

No comments:

Post a Comment