Departing Properties Lender Rules

Lenders have very specific guidelines and rules for a homebuyer who will be retaining their old home. In lendspeak “departing property” is the property a home buyer is moving out of, but will retain, as they buy a new home to upgrade, downgrade or relocate. In this tumultuous market of valuations and “walk aways”, lenders have very particular rules about ‘departing properties’ as a liability for a home buyer.

If the buyer can easily qualify to carry both mortgage PITI payments, and can show they have 2 months reserves after closing the new home purchase, a lender will comfortable financing an additional new home. But many home buyers may intend to rent out their old home instead of selling in such a down market. And the home buyer may need to show that rental income in order to qualify for the new mortgage, especially in the environment of more conservation DTIs (debt-to-income-ratios). Lenders set the departing property rules according to what they consider conservative enough to be safe.

To use departing residence income, the lender will require 4 things to be documented in the file.

1. A letter of explanation as to why the home buyer is purchasing the new home if they already have a home.
2. An executed rental agreement on the departing property for the time period soon after close of escrow on the new purchase.
3. A copy of the security deposit check from the new tenant.
4. A bank statement of the home buyer showing the rental security deposit check deposited to their account.

Lender rules allow a departing property to be in the process of short sale as long as the mortgage payments history doesn’t contain more than 1 x 30day late in the last 12 months.

WARNING. If the departing residence was refinanced in the last 12 months as an owner occupied home, the new lender may not accept the loan as a new owner occupied mortgage since the previous home refi paperwork sometimes states that the home owner intended to live in the property for at least 12 months. I hit that problem recently as Bank of America was the mortgage bank’s investor for the new loan and also the holder of the former home’s refi. Luckily as a broker, I could change course to a new lender who doesn’t use Bank of America as the investor purchasing the new loan.

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