Rules for Loans - A Response to the Credit Crisis

July 29, 2008

With the passage by the House and Senate of the "Housing and Recovery Act of 2008" lenders are hopeful that some of their credit losses will be modified. In the meantime, underwriting standards are undergoing some crucial changes in response to the laxness of the past several years.

While this is a great real estate market in which to pick up some single family investment properties or who want to buy a new principal residence and turn their present residence into a rental, underwriters have established new rules.

Here are the requirements for obtaining a loan on a new principal residence while still keeping your present residence as a rental. These new guidelines will go into effect on August 1, 2008.

1. There must be documented evidence of at least 30% equity in the your present residence.

2. You will have to have a signed lease on the residence you are keeping.

3. You will have to show evidence that you have received a rent check from your tenant.

Underwriters are attempting to stop the practice of homeowners claiming to be renting their present homes, but who, after the close of escrow on their new residence, cease to make payments on their former residence.

For homeowners who wish to lower their monthly mortgage payments, the new Housing Act may make their lender more willing to renegotiate their present loan. There are legitimate "work out" consultants who can assist is this process.