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Fannie Mae vs. Freddie Mac
Question:
We received a condition requiring “current housing payment verification” for a first-time homebuyer purchasing a 2 Unit property and using rental income to qualify. AUS is not requiring this condition, so we are trying to figure out why the underwriter is requesting it.
Answer:
I suspect the condition is due to Fannie Mae requiring the borrower to document a housing payment using rental income from the unit not occupied by the borrower.
Specifically this:
Desktop Underwriter (DU) has been updated to issue messages reminding lenders to verify and document the housing expense on 2- to 4-unit principal residence transactions when subject rental income is used to qualify. But…. The condition is still appropriate even if AUS didn’t specifically require it, as the underwriter is ensuring compliance with Fannie Mae’s rental income qualification requirements.
Freddie Mac
On the other hand, if this is a Freddie Mac loan, Freddie does not have the same requirement in this scenario.
Freddie Mac guidelines do not explicitly require a first-time homebuyer purchasing a 2-4 unit property to have a current housing payment history to qualify for a loan using rental income from that property. The underwriter’s condition may be a lender-specific overlay, especially since Loan Product Advisor (LPA) did not issue a finding for it.
Each of the links under “References” below takes you right to the section of the guidelines that would indicate whether the borrower must have a current housing expense to use rental income on a unit not occupied by the borrower.
Also, please consider this: A lender can always apply an overlay or their own risk appetite to these scenarios and conditions as they deem appropriate, regardless of the direction in the selling guides.
References:
Fannie Mae B3-3.1-08 – Rental Income
Freddie Mac Section 5306.1(e) Rental Income from 2-4 Unit
Mortgage Guideline Supporting Resources – Found Under Guideline References in the Charts & Checklists Section.
Rental Income – All Agency Comparison
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