UPDATE: Owner Occupied Cash Out Refinances with DTI above 45%
will now require 6 months Cash Reserves
As mortgage rates trickle higher, Fannie Mae has taken a step to tighten their Underwriting (UW) guidelines yet again. The latest revision is focusing on Cash-Out (C/O) Refinances with high Debt-to-Income (DTI) ratios.
Specifically, Fannie Mae has added a requirement for the Borrower to have 6 months of cash reserves if their DTI is over 45%. Cash reserve requirements focus the total housing payment (Principal + Interest, Property Taxes & Homeowners Insurance) and also include Mello Roos, Private Mortgage Insurance and/or Homeowners Association Dues (when applicable).
Let's say the total housing payment (including all of the above) = $2000.00 per month. The new Fannie Mae UW guideline now requires the Borrower(s) have no less than $12K in cash reserves if their Debt-to-Income (DTI) ratio exceeds 45%.
Historically, Fannie Mae only required these type of cash reserves if the Borrower(s) owned rental property. To institute this guideline on Owner Occupied C/O Refinances is a tell-tale sign that new guidelines are imminent.
If you or one of your Clients/Friends are seeking a C/O Refinance (for debt consolidation, home improvements, combining your existing 1st mortgage with your Home Equity Loan or Line of Credit, etc.), and do not have cash reserves, I heavily recommend contacting me right away to get "grandfathered" in on the current guidelines before cash reserves are required!
These changes will be applicable for all new loans run through the Desktop Underwriter (DU) automated underwriting systems on/after December 8, 2018.
The specific verbiage of the new guideline is spelled out below. Hope this helps!