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
12 Sep 08 Buy and Bail: Making The Rule Work For You. Part I
When you first find out about the new lending rule it can come as a bit of a shock. Knowing the rules and how to work within those rules will allow you to achieve you future goals.
Here is one persons take on the “buy and bail” rules and my response on how to work within the rules:
Subject: Buy and Bail
Brent,
I had never even heard of this until yesterday.
My husband and I own a townhouse. We have excellent credit, no late payments, no problems paying the mortgage at all…we simply want a house instead of this “hell” called townhouse living.
We paid 382,000 in March of 2007 and planned to stay here for only two years, then sell and get a real house. Fast forward to today, August 23rd 2008 and with 12 units in our complex for sale, all UNDER 320,000, some as low as $250,000, we know that we will not be able to break even let alone make a profit if we sell now.
As we drive around this city we see “real” homes that we could now easily afford if we could only get out of this townhouse. We have tried to think if every scenario possible to get us into a house but just ran into dead-ends all over the place. Yesterday, however, I spoke to a realtor about a really cute house that I saw.
Two bedroom, two bathroom, great landscaping, very modern upgrades and smack dab in a part of town that is almost always sunny..even when we have our horrible June gloom and May gray months.
I talked to the realtor for quite awhile about our situation and he gave us a lot of info on the sellers of the little house I like. Before he ended our conversation he then told me about “buy and bail”.
As home buyers who did not purchase beyond our means and who pay bills on time it is a real kick in the head to see people get refi after refi for hundreds of thousands of dollars or watch as they purchase a house that is WAY TOO MUCH MONEY…..then just casually walk away. Because of the thousands that have done this, my husband and I can not sell our home for what we paid for it and loan rules are going from no guidelines to “extreme” guidelines that even those of us with good credit will not qualify for.
Until yesterday I had never heard of buy and bail but I can tell you that this is now an option I am seriously looking into. I know we could actually get a renter for our townhouse but it would not be enough to cover the actual mortgage, HOA fees and taxes on this place. Maybe we should give it a go and hell…if we can’t make ends meet..looks like buy and bail might have to be our option.
Thousands of others are committing fraud…my luck…WE would get caught!
My response:
Hi C.!
I see it all the time, people who feel they are paying the price for others actions and honestly I can understand their point of view.
There are so many people out there who DO take advantage of the system and have gotten away with it! Now the banks have to make adjustments so they don’t continue to get burned.
Enter “Buy and Bail” here you have a scenario that is coming up all over the place but there are solutions to this issue.
To buy while owning and renting another property you simply need to qualify for both payments! This can be done by either (1) having enough income or (2) 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 short-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)
When you get thrown a guideline like this you need to get creative and work with the underwriters to find ways to work with the rule! Be Smart and NEVER LET THE BANK TELL YOU WHAT YOU CAN AND CAN’T DO! Find a way to get it done!
Both situations are not fraud, not illegal and overall follow a moral compass!
Let me know your thoughts!
Brent Lane
The Lane Group
www.thelanegroup.blogspot.com
www.brentlane.wordpress.com
Tags: brent lane, buy and bail, buy and bail rules, enough income, excellent credit, fha loan, new property, non-occupant co-borrower, short sale, the lane group
