Can I Rent Out My Upside Down Home and Buy Again?
Is your home upside down?
Falling home values and record low interest rates make this an incredible opportunity for many homebuyers.
What if you are a home owner now and you want to take advantage of this opportunity to move into a bigger, better or newer home with a lower interest rate and a lower mortgage payment?
>Selling the home is not really an option if you owe more than the home is worth. The only way out of this situation is short sale or foreclosure.
Obviously, short sale or foreclosure prevents you from buying again for at least 36 months (if buying using an FHA loan)
Can you rent out your upside down home and buy a new home?
The short answer is “Yes”….but there is a catch.
In the past, lenders could use a rental agreement to offset the mortgage payment on the rental home – all of that changed in 2008.
A new guideline was designed to keep people from “claiming” to rent their current residence to buy a new home, then let the original home go into foreclosure – many were gaming the system. This was referred to by Fannie Mae as the “Buy and Bail.”
If you have less than 25% equity and you are using FHA, or 30% equity if using a Fannie Mae conventional loan to buy your new home you must qualify for the full payment on both the current and new homes.
This makes if very difficult because most families cannot afford both mortgage payments. Even though you are receiving rents – you can’t use that money to qualify for the new purchase.
If your current home is not upside down, there are options.
If you do have equity in your current home, and you are looking to purchase a new home – you may use a portion of rents to offset the current payments, but it’s not black and white.
If you have questions about renting our your home to buy new a one, leave your question or comment below and I can address your specific situation.