Fannie Mae released an announcement yesterday which indicated they are tightening some of their guidelines to qualify for a new mortgage. The reason this is important is because Fannie Mae dictates underwriting guidelines for virtually all mortgage lenders.
There is one guideline change within this announcement that we feel will be impactful and thought we should share it with you.
It involves a buyer who is buying a new primary residence but has yet to sell and close on their existing residence. In this circumstance the buyer is required to qualify for BOTH mortgage payments (BOTH= the proposed mortgage payment on the new house & the existing mortgage payment). However, currently we are able to offset a portion of their existing mortgage payment by giving them a credit for the market rent that their home would earn if they chose to rent it out (even if this is not their intention). This helps them qualify for the new house. However, Fannie Mae has changed that guideline to the following (bold and italicized copy represent the changes):
1) If current home is being retained as a 2nd home (basically no rental income needed to qualify, but home is not being sold) – qualify with the full PITI payment on both properties plus borrowers must have 6 months mortgage payments in reserves for both homes!
2) If the home is being retained for an investment property & rental income is needed to qualify, you need the following: a) Evidence that the borrower’s have at least 30% equity in their current home, b) a copy of the fully executed lease agreement & c) evidence of receipt of the security deposit & deposit into the borrower’s account. If the borrower’s lack 30% equity (as verified by appraisal, AVM or BPO (Broker Price Opinion), you will also need 6 months’ mortgage payments in reserve on both properties*!
With average market times increasing (Washington County currently around 70-80 days) this will delay buyer’s ability to purchase a new home.
What you need to do?
Be sure your client gets pre-approved EARLY AND OFTEN!