Buying A Home Using Your Current Home as a Rental
Times have changed and so have the rules for lending in the last few years. For those in the real estate industry, this is not new news, however it comes as a shock when most homeowners find out they cannot buy a home if they cannot sell the home they are in to accomplish the task. After the real estate market crashed and homes declined in value in many areas, some home owners who purchased new homes while they still had good credit and then let their prior home go into foreclosure. This fraudulent practice in the industry became known as “Buy and Bail.” Fannie Mae, Freddie Mac & FHA, in order to protect themselves against this practice, created a few rules to allow some home buyers to use rental income (generated by their former primary residence) to offset the payment on that home to qualify when they are looking for a new home to purchase.
All the following must exist in order to use rental income from your home for purposes of a new loan:
- Documentation that the first month’s deposit has been received and deposited into the buyer’s account
- Documentation by the lender’s appraiser that the buyer has at least 30% equity (possible exception: company relocation)
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