DU/Fannie Mae Changes...er...I mean, Game Changers
Attention! Attention! This one goes out to the "Getting a loan is nearly impossible these days" crowd. Fannie Mae has recently taken a huge step to making things easier, helping to reduce barriers in home buying, and allowing us lenders to treat people less like criminals trying to scam us and more like what most people really are - good, hard working folks trying to achieve the American dream.
Fannie Mae often tweaks their program guidelines, and despite having a reputation of tough underwriting standards, does a pretty good job of keeping their product offerings and adapting to current market conditions. With current market conditions being "lots of people want a home, rates are ideal for buying, but a shortage of inventory and tight guidelines are holding many back", Fannie Mae has decided to at lest help with the last problem.
So what's changed? This may come off as a little long winded and "jargony" (it's a word, trust me), so if you have any questions feel free to send me a message with any confusion I can clear up. Also, think back to your database - anyone that has been hampered by these guidelines that are no longer in place? I'm sure there are many.
Converting a principal residence to an investment property (when buying a new home)
Previously, Fannie Mae had reserve requirements when a buyer already had a residence and would be converting that residence to an investment property rather than selling it. This is a pretty common chain of events, as many people either decide to use a previous purchase as an investment opportunity, OR other times when someone is short on equity or can't sell in a time frame that is convenient to their new purchase. In the past, Fannie Mae required a borrower to have 2 months of PITI (Principal/interest/taxes/insurance) reserves IF the buyer had 30% equity in their previous home. If they had less than 30% equity, this requirement jumped to 6 months worth of reserves.
With the changes just made to Fannie Mae guidelines, these reserves are no longer needed!!!
Also, under former Fannie Mae guidelines, in order to use rental income from a home being vacated/converted to a rental property to qualify for a new home purchase, that old home had to have 30% equity, and lenders were required to get an executed lease and evidence of a security deposit.
With the changes just made, there is no equity required, and we only need a lease!!!
Stocks, Bonds, and Mutual Funds
In the past, conventional loan guidelines only let you use a percentage of non-liquid/investment assets to qualify.
With the recent changes, we can now use 100% of those funds. Even better, if a borrower has those funds in excess of 20% more than is required for down payment/closing costs, no evidence is required to show that those funds have been liquidated (Read: No more closing delays because of delays in funds being transferred from investment accounts to available cash)
Important Note: If the borrowers invesment accounts do NOT exceed 20% over what's required for down payment/closing costs, evidence of liquidation will still be required.
Unreimbursed Business Expenses (this one is my favorite)
In the past, lenders had to subtract unreimbursed business expenses listed on tax returns from a borrowers income. This made little (common) sense because many people look for every write off they possibly can when it comes to work, however in reality it really doesn't affect lifestyle/income/savings, or anything important - it's just a write off available to already over-taxed Americans.
With the recent changes, if a borrower is qualified solely off of base pay, OR if they qualify using income from a bonus or commission BUT that bonus/commission income is less than 25% of their total pay, unreimbursed business expenses do NOT need to be held against a borrower.
Important Note: There is an exception - if the expense is an auto loan/lease payment, underwriting must still determine whether or not this line item should be factored in as a liability or deducted from income (depending on employment contract/car allowance/etc)
Union Dues/Other Voluntary Deductions
Previously, these figures were required to be deducted from income or sometimes added into a borrowers profile as a liability.
With the recent Fannie Mae changes, this is no longer the case. Union dues and other voluntary deductions do NOT count against a borrower!
VERY IMPORTANT NOTE: If you plan on taking advantage of any of these changes, make sure your lender has an agency direct product, as lender overlays will likely limit the benefit of some of these changes.
There is still a long way to go in returning to common sense lending, especially with regard to self-employed borrowers and those folks out there with alternative income sources, but these changes are a huge step in the right direction, and an indication that reality is beginning to set in at Fannie Mae & Freddie Mac....the pendulum had swung too far in the direction of being conservative. These new changes are a great move to help more people that deserve home financing get home financing.