Were you planning on renting your current primary residence and buying a new primary residence?

Smart Financial Mortgage which is affiliated with HomeSmart Real Estate had a clear description of the change.

FHA made a major change to their underwriting guidelines this week with regards to a borrower that rents out his current primary residence and then buys a new primary residence. In the past, a borrower was allowed to provide a rental contract on the primary residence that he was vacating which could wash out the mortgage payment when calculating qualifying debt to income ratios. The new guidelines say that a borrower is only allowed to do this if they have 25% or more equity in the primary residence they are vacating. If they do not have 25% equity they need to qualify with both mortgage payments. Fannie Mae and Freddie Mac have already implemented a similar rule requiring 30% equity.

I’m not a mortgage expert but I bet the change was influenced by those folks who “rented” out their current (very much underwater) residence, bought a similar new (but much cheaper) residence, and then quit making payments on the first home.

Of course, if you have 25% equity, you are unlikely to let it that home be foreclosed on.