25 Sep 08 
Buy and Bail and FHA’s Response
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So wouldn’t you know FHA found that the original rule for Buy and Bail was a little too steep and left many homeowners stuck in their home with no other course of action than to sell or head towards foreclosure.
If you are not quite sure what Buy and Bail means see my other articles on Buy and Bail Rules and Buy and Bail Part I and Part II
Now on to the new adjustments and how to work with this new rule to get what you want out of your Real Estate transaction.
- To be eligible to purchase a home using a FHA loan you would need to be relocating for a new job.
- The new home must reside outside a reasonable distance from your current residence and this is based upon underwriter’s discretion.
- Must have a full 1-year lease agreement from the closing date forward.
- You will need to show evidence of rental/lease by showing security deposit as cashed and/or first months rent.
- The adjusted equity position in your existing home is now 75% up from 70% but the appraisal can only be 6-months old or less. Now there is a small wrinkle in there that states you can show you put a 25% down payment based upon original purchase price but they may still require an appraisal to support the purchase price. Again the underwriter’s discretion.
Now the above rules are a good start but be prepared to have your potential rental income put under a microscope. FHA is extremely concerned about inflated rental agreements and has put in extra measures on the underwriting side of things to prevent fraud in this area.
Good news is that this amount of income that can be applied to your loan application for potential rents may be increased 15% in some cases and that will really help in qualifying for your new home.
Just in case you missed it, there are a couple ways to play the game:
- Add a non-occupying Co-borrower to you loan, must be a relative, to help you qualify.
- Make enough to cover both mortgage payments, current home and the new one.
- Short sale your home and buy before the negative reports on your credit report.
As always use a true Real Estate or Mortgage Professional because what you don’t know will hurt you in the end NOT the Realtor or Loan Officer.
Brent Lane
The Lane Group
Tags: buy and bail, closing date, co-borrower, existing home, fha, fha loan, home loan, Homes for Sale, lease agreement, loan eligibility, loan officer, loan qualifications, mortgage info, mortgage professional, Real Estate, rental agreements, rental income
17 Sep 08 Buy and Bail: How to Avoid Any Negative Consequences!
Buy and Bail: How to Avoid Any Negative Consequences!
So you own your home and your loan is upside down and the prices of homes are SO low that it’s hard not to consider moving into a bigger home for less than what you owe but you are concerned of what the repercussions may be.
Read through this email and response to see how things work and how you can apply it to your situation:
Hi Brent,
Read your article on your website and thought you might be the right person to answer some of my questions.
I have a property in M. CA, which I bought for $410k and now values $200k. I am thinking of the “buy and bail” option. I know it’s going to hit my credit which I am willing to take. What apart from the credit are other consequence should I look out for and can the bank come after my new house? Can they start taking income out of my paycheck? Can they put a lien on my new property? What are the tax consequences? Any help would be highly appreciated.
Thanks,
=Sabi=
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Here is my response!
Hi Sabi!
Thanks for the email and for reading my articles!
Just like most people in our area who bought in the past 24-36 months you are experiencing the impact of 50% decreases in the housing market!
Ok, so if I were in your shoes and wanted to avoid any and all consequences for “buying and bailing” I would first be sure I could buy before I even considered the “bail” side of things! In this market banks have eliminated what you might consider normal by not allowing someone to buy unless they meet certain criteria. Here are some points I wrote for another format but they apply here:
- To buy while owning and renting another property you simply need to qualify for both payments! This can be done by either having enough income or by adding a non-occupant co-borrower on an FHA loan to buy your new property.
- The other way is a bit more drastic and risky but you could sell your home and then qualify for the new one. This would take timing and negotiation skills but it can be done. Short-sale the current home and buy the new one before your credit reflects a settled account. (not perfect but possible)
- Both situations are not fraud, not illegal and pretty much moral!
Now on the consequence side of things, you really just need to be smart when “bailing” on your home. What I mean is you need to go about it in a way that will limit your exposure to banks by actively looking for “win-win” solutions for you and the bank. This would be in the form of a Short-sale or deed in lieu of foreclosure. It’s very important to approach the “bail” aspect properly because if you do that you will have the highest level of success and all your concerns will go away!
Read my posts on Loss Mitigation Negotiations and I look forward to putting it all together with you moving forward!
Let me know your thoughts.
Brent Lane
The Lane Group
www.thelanegroup.blogspot.com
www.brentlane.wordpress.com
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I hope this information was useful. As always I am here to help so please let me know your situation and I will do my best to help you the best way I know how.
Tags: buy a new home, buy and bail, credit score, decreased land value, fha loan, foreclosure, housing market, lien on property, non-occupant co-borrower, own your home, short sale, tax consequences
15 Sep 08 Buy and Bail: Making The Rule Work For You. Part II
If you missed Part I of this post you should read it because this rant may not mean too much to you without it.
Sometimes the housing market can be a bit much for people and they get frustrated. Let’s see one persons opinion and let me know if you share her thoughts.
HI Brent
I find the whole situation just backward.
Banks loaned money to people they KNEW could not afford a 800,000 house….all hell breaks loose and now those of us who had and still have excellent credit will not be able to get a house unless we jump through hoops to get it….we still have credit scores in the 800’s….YES…I said 800’s……
we have bought and sold 5 houses in the last few years (we moved a lot) and ALWAYS came out great after each sell….but we have NEVER had 20% to put down…we always did around 10 to 15% then got an 80/20 for the remaining amount….
we made 60,000 on our last sell and then moved back to V. and paid 382,000 for our current townhouse…put 30,000 down, and then put 10,000 in remodeling, and we still have 20,000 in the bank….but now unless we come up with the full 20% a bank will not loan to us?????? i just don’t get it…..
we are just staying here for another year and scratching the money aside so that if we do find a REO Home we really like we can try to jump on it….there is no way we make enough money to cover two loans…..so that option is out for us….
i am just sick of this whole thing…..but thank you for getting back to me….
C.
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It’s interesting, I appreciate the email and I can see how frustrating this whole situation can be. You may not be the person who is committing fraud but there is no way for us to convince the bank otherwise!
Keep your head down and focus because there will come that moment when this all goes away and those paying the most attention will reap the biggest financial rewards.
Brent Lane
The Lane Group
www.thelanegroup.blogspot.com
Tags: bank loan, brent lane, buy and bail, credit crunch, credit score, down payment, fha, home loan information, housing market, mortgage loan, real estate owned, reo, the lane group
