Fannie Mae Tightens Guidelines for Retaining Current Residence as 2nd Home or Investment Properties

In today’s Frank Howard Allen Office meeing, Andy Shine, mortgage broker with Residence Pacific Mortgage, discussed the new guideline by Fannie Mae, which will be effective on August 1. The guidelines affect loans for purchase a new home while retaining the current residence as 2nd home or investment porperty.

Might be time to buy the house you always wanted if you are sitting on the fence.

Here are the details:

Situation New Requirement
Current Principal residence is pending sale but the transacction 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 forthe new transaction
Coversion to a Second Home – Both the current and the proposed mortgage payments must be used to qualify the borrower forthe new transaction, and- 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
Conversion to an Investment Property Fannie Mae continues to permit up to 75% of rental income to be used to offset the mortgage if there is document equity of at least 30% in existing propertyThe rental income must be documented with:

– Copy of fully executed lease agreement

– Receipt of security deposit from tenant and into borrower’s account

If not meeting 30% equity requirement, rental income may not be used to offse the mortgage payment.

– Both the current and the proposed mortgage payments must be used to qualify the borrowers for the new transaction; and

– 6 months of PITI for BOTH properties is required to be in reserves. 

 

Daily Mortgage Rate Lock Advisory

 

The following is an Advisory posted by A La Mode, which provides us with Mortgage commentary for our clients. This is only an opinion from A La Mode. Since each borrower’s needs are different, this advisory can not be guaranteed to be in the best interest of all/any other borrowers.

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Thursday’s bond market has opened in positive territory despite the release of stronger than expected economic data. The stock markets are reacting positively with the Dow up 50 points and the Nasdaq up 40 points. The bond market is currently up 8/32, which with yesterday’s late gains should improve mortgage rates by approximately .375 – .500 of a discount point over yesterday’s morning rates.

There were two pieces of monthly data posted this morning. The first was March’s Personal Income & Outlays report that showed personal income fell short of forecasts with a 0.3% rise but that spending rose 0.4% when it was expected to rise only 0.2%. That means that consumers spent more than expected and that is considered bad news for bonds.

The Institute for Supply Management (ISM) released their manufacturing index for April late this morning. It showed a reading of 48.6, meaning that manufacturer sentiment remained unchanged from March to April. Anal ysts were expecting to see a small decline, so this report could also be taken as a negative towards bonds. However, the market seems to not be too concerned with it. Trader are probably waiting for tomorrow’s data before making any moves.

The almighty Employment report will be released early tomorrow morning, giving us April’s employment statistics. This is where we may see a huge rally or major sell-off in the bond market and large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and fewer than expected new payrolls. Just how much of an improvement or worsening depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for a 5.2% unemployment rate and approximately 75,000 jobs lost during the month.

Tomorrow’s second report and the last of the week is March’s Factory Orders data at 10:00AM. This is a fairly important release because it measures manufacturing sector strength. It is similar to last week’s Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report usually has more of an impact on the financial markets than the Factory Orders report does. Still, a smaller increase than the 0.2% that is expected could push mortgage rates slightly lower, while a larger increase will likely lead to higher rates. But, the employment numbers are of much more importance to the markets than this data is.

If I were considering financing/refinancing a home, I would….

  • Float if my closing was taking place within 7 days…
  • Float if my closing was taking place between 8 and 20 days…
  • Float if my closing was taking place between 21 and 60 days…
  • Float if my closing was taking place over 60 days from now…

Note: As stated previously, this is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.