Wednesday, September 24, 2008

Borrower Keeping Current Home: Guideline Change

As of Oct 1, 2008, all lenders and all programs (Conventional & FHA) will be changing the guideline regarding a borrower keeping their current home (usually as a rental that was documented by a lease agreement, which offset the payment) while purchasing the subject property. Listed below if the information regarding the change (call me with questions):

Pending Sale

If the current principal residence is a pending sale, but the transaction will not be closed (with title transfer to a new owner) prior to the new transaction:
· Both the current and proposed mortgage payments must be used to qualify the borrower

Conversion to Second Home

If the current principal residence is being retained as a Second Home:
· Must meet qualifications as a Second Home as defined in the Credit Policy Manual
· Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction
· Property has not been listed for sale in the past 90 days (unless evidence of job transfer is provided)
· Property has been owned at least 12 months (unless evidence of job transfer is provided)
· Reserves equivalent to:
o 6 months PITI for both properties is required; OR
o 2 months PITI if there is documented equity of at least 30% in the existing principal residence (as determined by an appraisal or AVM).

Conversion to Investment Property

If the current principal residence is being retained as an Investment property
· Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction
· Property has not been listed for sale in the past 90 days (unless evidence of job transfer is provided)
· Property has been owned at least 12 months (unless evidence of job transfer is provided)
· Reserves equivalent to 6 months PITI for both properties is required.
· Up to 75% of Rental Income may be used to offset the mortgage payment if:
o There is documented equity of at least 30% in the existing principal residence (as determined by an appraisal or AVM); AND
o Provide a copy of the fully executed lease agreement; AND
o Provide evidence of receipt of a security deposit from the tenant and evidence that it has been deposited into the borrower’s account

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