Hi Fun In Da Sun:
Maybe another lender knows of a trick I do not, but FHA is pretty clear on this. Due to others before you using this situation to "buy and bail", which the FHA and all other lenders consider an "unscrupulous practice", the ONLY times when you can use rental income from a vacated primary residence turned into a rental is if you are being relocated or HAVE AT LEAST 25% EQUITY IN THE VACATED PROPERTY. Since others are indicating otherwise, I have provided portions of the specific MORTGAGEE LETTER below (edited for brevity):
September 19, 2008
MORTGAGEE LETTER 2008-25
Existing Homes to Rentalsâ€”Underwriting Instructions
Through this Mortgagee Letter, the FHA takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHAâ€™s ability to help new homeowners.
Consequently, beginning with case number assignments on or after this date and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter.
â€¢Sufficient Equity in Vacated Property: The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.
The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).
Sorry. Are there any lenders out there which have seen real-life examples overcome this Mortgagee Letter?
Bill Parker, Loan Officer
AZ Lic# 09011570
CPA--Licensed, no longer practicing
GenCor Mortgage Inc.
15730 N. 83rd Way, Suite 103
Scottsdale, AZ 85260
(O) 480-525-8496, EXT 743; (M) 602-565-3646; (F) 480-436-5226
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