Breaking News! FHA may not be recognizing rental income anymore!

FHA has changed the rules on recognizing rental income if a buyer chooses to rent their home to purchase another one. The changes are an effort to reduce the practice they call "buy and bail- where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage".

HUD clearly states "the underwriting analysis may not consider any rental income from the property being vacated except" in case of work relocations or if the buyer has at least 75% equity in home being rented. The notice declares the policy to be in effect for any FHA case numbers pulled after September 19, 2009, so it can impact loans currently being worked. Don't let this change catch you unaware! If you have recently submitted an offer for a buyer who will be renting their current residence, have the loan reviewed to make sure that buyer still qualifies!

There is a plus side for select few so far. HUD is allowing local Homeownership Centers (HOC's) to determine "rental vacancy factors" for use in their markets. Thankfully in Florida (and in the jurisdiction of the Atlanta HOC) that will allow us to use 85% of rent for the time being. Do note, however, this policy "is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken". The one thing you can count on is more change.

View the mortgagee letter here for all the details, including the site to check what exceptions your area HOC has if any.

Gerry Suarez, Jr.

Your HUD Loan Pro!