Show You may not be familiar with the term “buy and bail” but lenders are. And if you’re not familiar you may be very surprised when a lender denies your loan when you try to convert your primary, current residence into a second home or rental. That is, unless you stumbled upon this blog. First let’s talk about conventional loans (those backed by Fannie Mae and Freddie Mac.) If you are applying for a conventional loan, the guidelines are as follows:
If you are applying for an FHA loan however, the guidelines are similar but slightly different in significant ways. Also, keep in mind, there are few exceptions to using FHA financing when you already have an FHA loan. Here are the guidelines: The main difference with FHA is that they don’t have specific cash reserve requirements in the same way as conventional loans. In this way, FHA is more lenient. Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm) may be considered in the underwriting analysis under the following circumstances:
Here is a link to FHA’s Mortgagee Letter 08-25 that originally outlined these requirements: http://portal.hud.gov/hudportal/documents/huddoc?id=08-25ml.doc. I’m providing these guidelines as reference. They are by no means a replacement for a good loan officer who can help structure a loan that is right for you without hours of internet research! Charles Dailey – Branch Manager, Loan Officer, Certified Military Housing Specialist – CA DOC, MN DOC & WI DFIThe ONLY civilized way to search for homes!
How does Freddie Mac define primary residence?It is occupied by the owner for the major portion of the year. It is in a location relatively convenient to the owner's principal place of employment. It is the address of record for such activities as federal income tax reporting, voter registration, occupational licensing and similar functions.
Can you use rental income on a departing residence?When buying another primary residence, VA loans allow the buyer to count up to 100% of the new rental income on the departing residence. In order to count the rental income, a 12-month lease must be provided, and most lenders even require proof of the first month's rent or security deposit.
What is a departure property?A departure property is the home that is currently owned and occupied by the borrower. If the borrower chooses to convert that home to an investment property, this is referred to as primary conversion.
What is a boarder salary?ISSUE DATE: 07/2022. A unit receives roomer/boarder income when someone living in their home pays them for lodging and/or meals, or eats with the unit and pays them for meals. Units with roomer/boarder income are considered self-employed.
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