Thursday, November 6, 2008

Buying a New Primary Residence and Keeping Your Current Residence as a Rental

Just a reminder that the new rules for buying a primary residence, while retaining a current primary residence as a rental, have gone into affect. Here's how it works.

If someone is planning to retain their current primary residence as a rental, they must have 30% equity in their current primary residence if they need to include any rental income to qualify for the loan. They also need a lease agreement and proof that the security deposit for the rental has been deposited into their account.

If they don't have 30% equity in their current primary residence, they can still buy a new primary residence, but they cannot count any rental income from their current house. In other words, they need to be able to qualify for the loan counting both house payments.

There are also reserve requirements that must be met. Reserves are liquid assets (bank accounts, retirement accounts, etc.) that the borrower will have left over after the closing. The required reserves could be as high as 6 times the house payments, but if the loan is run through an automated underwriting system, they are usually lower than 6 months.

For FHA loans, the amount of equity that's needed is 25%, not 30%. The 30% equity requirement is for conventional (non-government) loans.

No comments: