Various Agency policy changes

Conversion of Principal Residence to Second Home or Investment Property

The following guidelines apply to manually underwritten loans and, with the exception of the additional reserve requirements, must also be applied (on a manual basis) to Fannie Mae Desktop Underwriter (DU), Freddie Mac Loan Prospector (LP) loan case files.

Borrowers who currently own their home typically have three options when they decide to purchase a new principal residence:

  • Sell the current residence and payoff the outstanding mortgage,
  • Convert the property to a Second Home, assuming they qualify with both the existing and new mortgage payments, or
  • Convert the property to an Investment Property and provide documentation that they will rent the property and use the income to offset the mortgage payment.

In order to ensure that borrowers have sufficient equity and/or reserves to support both the existing and the new mortgage being originated, policies for qualifying borrowers purchasing a new principal residence and converting their existing principal residence to a second home or investment property are as follows:

Current principal residence is pending sale but the transaction will not be closed (with title transferred to new owner) prior to the new transaction.

A pending sale requires a valid, signed Purchase Agreement. Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction.

If the current principal residence is listed, with no pending sale, then the following requirements apply:

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

6 months PITI Reserves for retained property plus 6months PITI Reserves for the subject property is required. (if the standard program requires more follow the program guidelines)

OR

Reduced reserves of no less than 2 months for both properties may be considered if there is documented equity of at least 30% in the existing property (derived from an appraisal, BPO or AVM minus outstanding liens)

Conversion to a Second Home

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

6 months PITI Reserves for retained property plus 6months PITI Reserves for the subject property is required. (if the standard program requires more follow the program guidelines)

OR

Reduced reserves of no less than 2 months for both properties may be considered if there is documented equity of at least 30% in the existing property (derived from an appraisal or AVM minus outstanding liens) 

 

Conversion to an Investment Property

Up to 75% of the rental income may be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (derived from an appraisal, BPO or AVM minus outstanding liens)

  • Ø The rental income must be documented with:
  • o A copy of the fully executed lease agreement; and
  • o The receipt of a security deposit from the tenant and deposit into the borrower's account.
  • Ø A family member, individual with an established relationship with those involved in the transaction, or an interested party may not sign the lease agreement as the renter.
  • Ø At Investors discretion, a fair market rent letter may also be required.

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

  • Ø Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction and
  • Ø 6 months of PITI for BOTH properties is required in reserves

 

 

Cash-Out Seasoning requirements

 

Seasoning (All products):  For any loan to be eligible for a cash-out refinance, the transaction must meet the following seasoning criteria:

  • o The borrower must have owned the subject property for a minimum of 6 months prior to the registration date; and
  • o Any previous refinance transactions on the subject property (rate/term or otherwise) must have closed at least 6 months prior to the application date on the new cash-out refinance.

 


Condo Questionnaire Form

 

            Rate has posted an updated form for a Full Condo Project review.  This form is required to be filled out on all loans where a limited project review is not permitted.

 

 

Declining Market Policy clarification

 

            Tuesday, Rate eliminated the Declining Market policy for Agency loans.  Loans that are located in a declining market are still subject to each individual Mortgage Insurance companies' policies and restrictions if Mortgage Insurance is necessary.

 

Please feel free to contact your VP of Wholesale Lending or the Commitment Desk for further clarification if needed.

 

Thank you for your continued business!!

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