Written By: Leslie Petersen, Rules and Regulations Expert and Editor of MortgageCurrentcy.com.
(The following is in regard to Fannie Mae Announcement 08-13, June 13, 2008)
For loan applications taken on or after 8-1-08, the following applies to all loans, both manually and DU underwritten.
If the borrower is purchasing a new residence and is retaining current principal residence (not sold at time of closing) the following apply:
Existing Home Pending Sale, Not Closed
- Include both current and proposed payments in DTI
Existing Home Converts to Second Home
- Include both current and proposed payments in DTI; and
- Reserves required are
- 6 months PITI each for both properties; or
- If 30% equity is evidenced in existing property per new appraisal, AVM, or BPO – 2 months PITI each for both properties; or
- Reserves Per AU approval
Existing Home Converts to Investment Property Home
- Include both current and proposed payments in DTI; and
- Reserves required are
- 6 months PITI for each for both properties; or
- Per AU approval
OR:
- Use 75% of rental income to offset current payment, but only if:
- 30% equity is evidenced in existing property per new appraisal, AVM, or BPO; and
- Fully executed lease is in file; and
- Security deposit received from new tenant is verified & deposited into borrower's account
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Interpretive Comments
Here’s what Fannie left unsaid. Far too often lately, individuals who are way upside-down in their current homes are going out and buying new homes. Knowing that their current home won’t sell, the borrower makes a decision (sometimes with the counsel of a real estate agent and/or the loan officer) to keep their current house as a “second home” or a “rental”.
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Continue the story for Leslie's interpretations of the rule for Loan Originators, Processors, Underwriters and Owners/Managers.
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