Scottsdale / Arcadia AZ real estate listings and homes for sale, home buying, home selling information – Aaron Lending, LLC

Blog It

Buy and Bail

September 23rd, 2008 6:44 AM

To address increasing occurrences of the practice known as “buy and bail,” FHA has issued Mortgagee Letter 08-25 – Converting Existing Homes to Rentals – Underwriting Instructions. FHA is instituting the following requirements for borrowers who purchase a new primary residence without selling their existing primary residence. The term “buy and bail” refers to a developing trend where borrowers purchase a new primary residence either closer to their employment or in close proximity to their existing primary residence. Once the new mortgage is closed, the borrower stops making mortgage payments on the original primary residence and allows the lender to foreclose.

The following requirements are effective for loans on or after September 19, 2008 and are temporary measures being implemented until FHA determines what, if any, permanent action is required:

- All borrowers must fully qualify with both mortgage payments, and no rental income may be used for the property being vacated.

- 12 months’ reserves — based on the PITI of the property being retained

FHA permits two exceptions to the requirement above:

- When a homebuyer is relocating with a new employer or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance, rental income from the property being vacated may be used. A fully executed lease with at least one year remaining after loan closing is required.

- When the LTV of the property being vacated is 75% or less, rental income may be used. The LTV is determined by a current appraisal no more than six months old or by comparing the unpaid principal balance to the original sales price. In addition to using standard full appraisal forms, the appraiser may also use drive-by form 2055 for detached homes, or condo form 1075.

In addition to FHA’s exception requirements described above, some Banks requires the following:

- Fully executed lease

- 12 months’ reserves – based on the PITI of the property being retained

- Evidence of receipt of the security deposit

- Evidence of deposit of the security deposit into the borrower’s account

The requirements listed above do not pertain to existing rental properties disclosed on the loan application and confirmed by tax returns.

If the property being vacated is encumbered by an FHA mortgage, FHA will not insure the new mortgage unless the loan meets one of the four exemptions described in HUD Manual 4155.1, revision 5, section 1-2.

Posted by Aaron Walker on September 23rd, 2008 6:44 AMPost a Comment (0)

Energy Efficient Mortgages

September 3rd, 2008 2:20 PM

TYPICAL EEM FHA Energy Efficient Mortgages allow the homeowner to borrow up to 5% of the loan amount or $8000, whichever is lower, above the purchase price for qualified improvements. ‘Weatherization’ improvements can increase this extra amount further, though under different guidelines. Contact us for more information. We supervise the EEM portion of the loan process from documentation through implementation of the energy efficient improvements.

Some of the improvements that qualify for the energy efficient mortgage are:

Insulation – Attic, Wall, Floor
Infiltration – Testing for and Sealing air leaks in exterior walls, floors, ceilings, and windows
Duct Improvements – Testing, and sealing, insulating. The average home in California Leaks 30%
Window Replacements
Water Heater – Replace with high efficient, or on demand unit
Solar Water heating
Heating/Cooling HVAC unit
Lighting Conversions – Converting to CFLs and/or high efficiency lighting units

Posted by Aaron Walker on September 3rd, 2008 2:20 PMPost a Comment (0)