CHANGES TO FNMA REGULATIONS FOR NEW PRIMARY RESIDENCES
Borrowers who currently own their home typically have three options when they decide to purchase a new principal residence:
A)
sell the current residence and pay off the outstanding mortgage,
B)
convert the property to a second home, assuming they can qualify with both the existing and new mortgage payments, or
C)
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.
SITUATION |
NEW FNMA REQUIREMENTS
(Freddie Mac has not yet adopted these requirements,
but is expected to do so soon.) |
| Current principal residence is pending sale but the transaction will not be closed (with title transfer to a new owner) prior to the new transaction. |
Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction. |
| Conversion to a Second Home |
A) Both the current and the proposed mortgage payments must be used
to qualify the borrower for the new transaction; and
B) 6 months of PITI for both properties is required to be in reserves. Lender may consider reduced reserves of no less than 2 months for both properties if there is documented equity of at least 30 percent in the existing property (derived from an appraisal, automated valuation model (AVM), or Broker Price Opinion (BPO), minus outstanding liens) |
| Conversion to an Investment Property |
Fannie Mae will continue to permit up to 75 percent of the rental income to 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, 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 percent 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. |
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