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4/03/2014

Freddie Tightens Underwriting AGAIN



Freddie Mac rules for conversion of a property to investment or second home revised. More reserves for the property conversion are now required , and you will have to qualify with both payments and extra appraisals needed.

 

Borrower converting Primary Residence to second home:

 

If the Borrower is converting a Primary Residence to a second home, and purchasing a new Primary Residence, the following requirements apply:
 
The monthly payment amount for the property being converted to a second home and the monthly housing expense for the subject property must be included in the monthly debt payment-to-income ratio in accordance with the requirements • The reserves requirements must be met.

 

Borrower converting 1-unit Primary Residence to an Investment Property:

 If the Borrower is converting their 1-unit Primary Residence to an Investment Property and purchasing a new Primary Residence, the following requirements apply:


The Seller can use rental income from the property being converted to qualify the Borrower, provided that:

The loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit TLTV (HTLTV) ratios of the property being converted are less than or equal to 70%, as evidenced by an appraisal with at least an exterior-only inspection that meets Freddie Mac requirements

 
And the Borrower's federal income tax returns must reflect a two-year history of managing investment properties when a signed lease is used to determine the net rental income

The rental income is documented with a copy of the fully executed lease and, in addition, the receipt of a security deposit from the tenant with evidence of the deposit into the Borrower's designated account

 

Borrower converting 2- to 4-unit Primary Residence to an Investment Property:

 
If the Borrower is converting their 2- to 4-unit Primary Residence to an Investment Property and purchasing a new Primary Residence, the following requirements apply:

• The Seller can use a maximum of 75% of the gross rental income from the unit previously occupied by the Borrower to qualify the Borrower, provided that:

o The LTV/TLTV/HTLTV ratios of the 2-to 4-unit property being converted are less than or equal to 70%, as evidenced by an appraisal with at least an exterior-only inspection that meets Freddie Mac requirements, and o The rental income is documented with a copy of the fully executed lease and the receipt of a security deposit from the tenant with evidence of the deposit into the Borrower's designated account • Rental income for the units not previously occupied by the Borrower may be used to qualify the Borrower

 

Additional reserves required for Mortgages secured by Primary Residence when Borrower's current Primary Residence is pending sale or being converted to a second home or Investment Property:

Pending sale or conversion of 1- to 4-unit Primary Residence to second home or Investment Property - Additional required reserves:

• Six months for the subject property, and • Six months for property pending sale or being converted

 When loan-to-value (LTV)/total LTV (TLTV)/ Home Equity Line of Credit TLTV (HTLTV) ratios are <=70% for property pending sale or being converted:

• Two months for the subject property, and • Two months for the property pending sale or being converted

Translation:
You are buying another home and not selling your current residence.
You must have rental properties on your past two years taxes to be able to use any rents.
If you do not own any rentals, you will need to qualify with both principle interest taxes insurance and Home Owner Association fees.
Freddie Mac is tightening up once more for the millionth time. Fannie will follow suit on conventional loans.
Tighten that belt on the American Home Buyer again Freddie.


 

 

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