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Just a heads up, that Fannie Mae has changed some of their lending rules I found out today. I am in the process of securing a mortgage for a new home for my family. I bought a small condo 3 years ago and then met my wife/had a kid. Well we outgrew it, and need a new home. With the new house, I was still around the 45% backend DTI and was informed today that the new rule is the following;
If the current primary residence will become an investment property and at least 30 percent equity in the current primary residence cannot be documented, or the borrower does not have a two-year history of managing investment properties as evidenced by the most current two years filed and signed Federal IRS 1040 tax returns:
· Rental income may not be used to offset the mortgage payment and
· Both the current and the new mortgage PITI payments must be used to qualify the borrower for the new transaction and
· Reserve Requirements are the greater of:
o Six months PITI for both properties, or
o Standard reserve requirements, or
o Reserve requirements as indicated by AUS (i.e., Desktop Underwriter® DU reserve requirements may be greater than published policy)
Basically, you will need 6 months of payments for current and future property in reserves. In my case, it was an additional 10 grand I needed to show. Luckily it can be gifted and we were able to get it, but for those on the fence with this....make sure you have a lot of reserves
60% of your 401k can count as reserves as long as you arent depleting them for the down payment
Hope this helps everyone
Yeah that is what I have been hearing too. We are working on the saving up enough reserves for both mortgages right now. Makes sense when you think about it. I would want to have the several months of payments saved up in case something falls through with a renter.
It's now being referred to as the mortgage triangle, e.g. income, equity, and cash, according to the HARP people.
I want to make sure I understand this correctly...Is it just principle and interest? or principle, interest, taxes, PMI? this is my current situaiton:
Condo #1-$1070 (principle and interest) $245 (escrow-insurance and PMI) Total: $1315 (current residence, will become our rental)
House #2-$1700 (principle and interest) $ unknown taxes/insurance (currently being built, will become primary residence)
Do I need $1700+$1070 X 6 months....or
$1700 + $1070 + insurance and PMI X 6 months?
Just want to make sure because we started building yesterday...want to make sure how much money they will expect that I have....
Thanks in advance!
Total payments x 6 including principal, interest, taxes, insurance and PMI. If you have an HOA/condo fee add that in too...
@ccubedzx3 wrote:I want to make sure I understand this correctly...Is it just principle and interest? or principle, interest, taxes, PMI? this is my current situaiton:
Condo #1-$1070 (principle and interest) $245 (escrow-insurance and PMI) Total: $1315 (current residence, will become our rental)
House #2-$1700 (principle and interest) $ unknown taxes/insurance (currently being built, will become primary residence)
Do I need $1700+$1070 X 6 months....or
$1700 + $1070 + insurance and PMI X 6 months?
Just want to make sure because we started building yesterday...want to make sure how much money they will expect that I have....
Thanks in advance!
It is inclusive of Payment, Interest, Taxes, Insurance and HOA
Thanks everyone for the insightful answer. To be honest I feel bad for anyone trying to buy a home....heck, even myself. I think a lot of people get a false sense of hope when they hear of the FHA program and how you "only need 3.5% down"......A lot of people will not expect all the other costs that are needed before you can even close. Closing costs are on average another 3% of the cost of the loan. Then this whole need for reserves.
For instance, my wife and I are buying a home for the Federal Loan Limit of $297,500. With that number, we need to put a little more than $10,000 for a down payment...but that's not it. We also would need $9000 for closing, and another $21,000 in reserves. All in all, we need $40,000 of assets which is an additional $30,000 above and beyond the 3.5% or $10,000....That's a lot of additional money that most people probably do not expect.
What if you DO HAVE 30% equity in the current home. What type of reserve do you need to show to purchase a second property then?
What if the second property will not be a rental but a second home?
@crunching_numbers wrote:What if you DO HAVE 30% equity in the current home. What type of reserve do you need to show to purchase a second property then?
What if the second property will not be a rental but a second home?
If you have 30% equity you'll need the standard reserves on the new house is my understanding.