30 Jul 08 
Buy and Bail Revisited! Home Buying Loan Changes
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So if you plan on looking or are already in the process of buying a new home I strongly suggest you make sure your still qualified.
Now I am going to lay out some guidelines that are commonly used to help people get qualified to buy a home and will detail what to look out for moving forward.
· Buy and Bail Revisited- I have documented several times here about the Buy and Bail Rules so now it is official! The new rules are now out and will go into effect on August 1st so make sure you lock in your loan before then or fall victim to the new rules.
Turning your current home into and investment property while attempting to buy another property, this is now a HUGE concern for lenders and the new rules states:
“If borrower is renting out their current home and purchasing a new primary residence, to use rental income to qualify, the following requirements must be met: 75% of rental income may be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property, derived from an appraisal.”
OUCH!
That one is Huge and should have a lasting impact on the Real Estate Markets all over the country. Previously all you needed to do was document with a lease agreement a reasonable rental income and then you could use up to 75% of that rental income to counter the existing mortgage payment regardless of equity position.
SO if you DON’T have the 30% equity you still have options, you will need to qualify to buy your new home using both new mortgage payments and existing mortgage payments against your debt to income ratio. (Qualify with both Mortgage Payments) The same would be true if you kept your current home as your second home.
· Credit Changes- In addition to these changes you will see that FNMA is tightening its’ credit guidelines. This will produce an interesting scenario further limiting new home buyers to those in relatively great financial positions, I guess that is the way it should be really.
Two changes in the credit area you need to be aware of:
First, No longer can you pay down installment loans to under 10 months or less and not have them used against you to qualify.
Second, Credit that shows no monthly payment because balance is due monthly will be held to 5% of balance as payment or proof account is paid in full by the close of escrow.
Also, Conventional financing just got even more credit sensitive so if you haven’t looked into an approval and think your mid-600 credit score is okay you might check again.
As always I am here to help! You can find more articles at www.brentlane.wordpress.com or www.thelanegroup.blogspot.com
Brent Lane
Tags: brent lane, buy and bail, buying a new home, credit, credit changes, equity, financing, home buying guidelines, investment property, mortgage payments, new home, pay down installment loans, real estate market, rental income, second home, the lane group
Reader's Comments
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Wow, that should put a big dent in the real estate market. I have not heard of any buy and bail activity going on here in New Jersey, but then again we did not have that much speculation in 2003 to 2005. By 2006 we were fully into the real estate downturn, and now we seem to be coming out of it.
Hi James!
I think you will see some major changes in the Real Estate Markets now that this type of law has been implemented. That doesn’t even take into consideration the other rule changes FNMA and FDMA have made to their guideline making it either more expensive or limiting their loan exposure to only those with extremely good credit.
Only time will tell but look for a HUGE impact!
Brent
Tightening of lending standards and the elimination of DPA programs will assure that some of the stronger markets continue to stay flat and that the worst of the declining markets continue to decline.
Great Job! To this terms legislation at assuring that lower class working families will be stuck in a rut prevented from improving their position in the pecking order.
I’m guessing things are a whole lot more difficult right now than when this blog entry/ article was first published.
Thanks for the information. It would be nice if more people commented on this topic. It’s not too confusing if you read and understand then please teach what your learning..