Buying before Selling: Is it a Viable Option for Transferees?
In light of the current economic environment, an increasing number of transferees are experiencing a major loss of equity in their current residence. Not wanting to take a loss on sale (or in the case of negative equity; not capable of taking the loss), an increasing number of these transferees are wanting to convert their current home into an investment property in hopes of using the rental income to qualify for a new primary residence at their destination. While this may have been a great option in the past, it has now become a next to impossible option due to recent changes in underwriting guidelines by all three of the government sponsored enterprises (GSE’s: Fannie Mae, Freddie Mac, and Ginnie Mae).
Several months ago, each GSE announced that they were revising their guidelines for converting principal residences into investment properties. The most dramatic of these changes is that unless a borrower has 30 percent equity in the home being converted, the rental income may not be used to offset the mortgage payment. In addition, if the transferee does not have the 30 percent equity, they will need to have a minimum of 6 months of reserves for both properties; this is after they make their required down payment on the new home.
Due to the increasing complexity of residential lending, it is now more important than ever for transferees to consult with mortgage professionals that are experts in relocation. It is also important to encourage transferees to begin the pre-approval process as soon as possible so that they have the time to improve on their situation before they are ready to buy.
Posted on 02/11/2009 in Mortgage | Comments (0)
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