What is “Buy and Burn”?
In areas where there tends to be subdivisions of newer construction and a sharp increase in foreclosure’s the homeowners who were able to stay current with their payments began to wonder why pay a mortgage of $650,000 when I can buy the foreclosed property down the street for $300,000 with the same floor plan.
These homeowners would buy the foreclosed property stating they intended to rent the property, but what they really did was move into the recently purchased foreclosed property and then stop making payments on the house with the mortgage of $650,000. Then that home in turn would go into foreclosure.
What is the Change?
In an effort to stem this practice Fannie Mae has a new guideline that will take affect 8/1/08. Buyers who plan to keep their current home and rent it while purchasing a new owner occupied home must have 30% equity in the departure property in order for the lender to use proposed rental income when qualifying them for the new loan.
