FHA Buy and Bail RuleBecause of the recent increase in homeowners purchasing another home and claiming they will rent their existing home then allowing the existing home to go into foreclosure; a new term has emerged "Buy and Bail"
To halt Buy and Bail fraud FHA and Fannie Mae have enacted new rules.
CONVERTING AN EXISTING HOME TO A RENTAL
FHA now requires buyers who are legitimately purchasing a home and converting their existing home to a rental either qualify for both loans or have 25% equity in their present home. Fannie Mae previously instituted their own Buy and Bail rule.
Relocations: The home-buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year's duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month's rent was paid to the homeowner.
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