Buy and Bail

Buy and Bail refers to the increasing number of home buyers providing misleading information about the rental income of their current home which they plan to vacate. However in many situations, the true intent is not to turn the character into a rental. What we are seeing more and more is that these buyers simply abandon their former character, stop making their payments, and simply let it go into foreclosure. Although not everyone who is vacating one character for another has the intention to abandon their past home, those who do have caused FHA, Fannie Mae, and Freddie Mac to take steps in order to prevent this fraudulent activity.

The following requirements must now be met when a borrower is converting their dominant residence into an investment character.

FHA

-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 place 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 proven with a copy of the fully executed lease agreement

-Receipt of a security place from tenant and place into the borrower’s account must be proven.

-Reserves of six months PITI for both similarities is required.

Source of information:

Platinum 1st Mortgage LP

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