Well, Fannie Mae and Freddie Mac dont believe you.

 

 

Unless that is, you have at least 30% equity in your home.

Which unfortunately…. most of us don’t.

 

 

Many people out there have been taking advantage of the low market and qualifying by stating that their old home will be used as a rental. Once they close escrow on the new home, they stop making payments and let the bank foreclose on the old one.

 

Frankly, Fannie Mae and Freddie Mac, (FNMA & FHLMC) aren’t “buying it” anymore, (Pun totally intended). They’ve updated their guidelines; and us as mortgage brokers need to follow their new rules.

 

In summation, if a borrower is purchasing a home without selling their current residence….

Unless they have 30% equity in the property they are moving from, they will not be allowed to use any proposed rental income.

They must then qualify for both payments and have enough reserves to cover both payments for 6 months.

 

 

Converting a primary residence to an investment property (during a new purchase transaction):

Fannie Mae will continue to permit up to 75% of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property (derived from an appraisal, AVM, or BPO, minus outstanding liens).

The rental income must be documented with:

·         a copy of the fully executed lease agreement; and

·         the receipt of a security deposit from the tenant and deposit into the borrower’s account.

 

If the 30% equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

·         Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

·         6 months of PITI for both properties is required to be in reserves

 

These guidelines are applicable to manually underwritten loans and, except for the additional reserve requirements, must also be applied (on a manual basis) to loan casefiles underwritten with DO/DU. DO/DU will determine the level of reserves for each loan casefile.

 

All of the above guidelines go into effect August 1, 2008.