Assistant Secretary of Housing for FHA, Brian Montgomery, announced a new plan to govern against the “buy and bail” issue so prevalent in our industry today. Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence. Brian suggested that this was occurring more frequently now because of rising costs in fuel, and families were targeting homes more near their place of employment, or simply that today’s market has offered so many opportunities for great deals that they were taking those opportunities and bailing on their current home.
The new “temporary plan” will determine that the homeowner can afford both mortgages without rental income or that they stand in equity depth on the current home that they could easily sell it rather than default if they couldn’t rent it.
There are two exceptions to this new temporary plan by FHA:
1. When a homebuyer is relocating with a new or current employer to an area recognizable to FHA as a commutable distance. In that case, the underwriter will use an executed lease agreement of no less than 12 months from day of close, and verification of a security deposit and/or first month’s rent was paid to the homeowner to determine satisfactory offset of rental mortgage payment is actual.
2. The home owner has a 75% or better current Loan-to-Value in the current home determined by a residential appraisal dated no more than six MONTHS old, or by comparing the unpaid principle balance to the original sales price of the property.