Fannie Mae Underwriting Improvements as of 7/29/17

Fannie Mae has released changes to its Desktop Underwriter “DU” (automated underwriting) guidelines in the following categories:

 

1. Maximum DTI:  Total Debt to Income Ratio is increased from 45% to 50%. 
    
2. Disputed Credit Tradelines:  If DU issues an “Approve” recommendation including disputed tradelines, no further documentation for the disputed tradeline will be needed.  This change will result in faster approvals due to elimination of additional documentation.
    
3. ARM LTV Ratios:  ARM LTV ratios will be increased to be aligned with fixed-rate mortgage LTV ratios for all transaction, occupancy, and property types, up to a maximum of 95%. 
    
4. Self-Employment Income Documentation:  The number of self-employed loans eligible for one year of personal and business tax returns will increase.
    
5. Student Loan Cash-Out Refinance:  Paying off student loans with a mortgage refinance will no longer be considered a “cash out” transaction, potentially saving the refinance borrower anywhere from .25% to .5% on the new mortgage rate.  Previously, when borrowers refinanced mortgages to pay off student loans, the transaction was considered a “cash out” transaction with higher rates for the cash out even though the funds were being used to pay off the student loans. 
    
6. Qualifying New Job Without Paystub:   For primary residence, one-unit, purchase transactions, when borrower has a job offer for a new job but will not start prior to purchase date, borrower is able to obtain the mortgage loan without a paystub with alternate documentation requirements.  In the past, borrower had to have at least one paystub prior to closing.
    
7. Site Condos:  Removed project review requirements for site condos.
    

Submitted By:

 

Diane Pyshos

Sr. Mortgage Consultant, A & N Mortgage Services, Inc.

dianep@anmtg.com    312-909-9718

NMLS #137800   Company ID #19291

Offices in Chicago, IL and Union Pier, MI

 

Should You Tap Into Your IRA Accounts for Down Payment?

What do you do when you are ready to purchase a home but your bank account is not as ready as you are?  Below is information from Diane Pyshos, Sr. Mortgage Consultant, A & N Mortgage Services, Chicago, IL on pros and cons of using IRA funds for your down payment.

 

IRA Withdrawal – First Time Homebuyer Exemption

The IRS allows penalty-free withdrawals of a limited amount of IRA funds for first-time homebuyers. However, taking that withdrawal comes with certain caveats that you need to carefully consider.

Who's considered a 'first-time' homebuyer

While IRA withdrawals before age 59½ usually trigger a 10 percent penalty, there are exceptions—including the first-time homebuyer exemption. Making it even more tempting, the definition of first-time homebuyer is broader than it sounds. 

It applies to your very first home purchase, of course, but it also applies if you or your spouse haven't owned a principal residence at any time during the past two years. The operating word here is 'principal', because even if you've owned a vacation home during that time, the exemption can still apply.

Also, you yourself don't have to be the homebuyer. You can also qualify for the exemption if you're helping your spouse, child, grandchild or parent buy a home.

What you can withdraw

 

The maximum penalty-free withdrawal from an IRA under the homebuyer exemption is $10,000.

That $10,000 limit is an absolute if you have a traditional IRA. However, if you have a Roth IRA that you've held for at least five years, you may have a little more leeway. That's because you can always withdraw contributions to a Roth tax- and penalty-free. But if you withdraw earnings from your Roth, you're subject to the $10,000 limit.

The good news is that you and your spouse can qualify individually for the homebuyer exemption, potentially doubling the amount of money you can withdraw.

Taxes you may have to pay

The homebuyer exemption is penalty-free, but not necessarily tax-free. Again, the rules are different for traditional and Roth IRAs.

With a traditional IRA, withdrawals are subject to ordinary income tax no matter what. So, if you're in the 25 percent tax bracket, your $10,000 withdrawal for a down payment is really only $7,500.

With a Roth, withdrawals of contributions are always tax-free because you've already paid income taxes on that money. So are withdrawals of earnings of up to $10,000 under the homebuyer exemption, assuming you've had the Roth for five-plus years. But if you withdraw more than $10,000 in earnings, that money will be subject to both ordinary income taxes and the 10 percent penalty.

Best to consult your tax advisor.

What you can use the money for—and when

Once the money is in your hands, the IRS wants to make sure you use it for the purpose intended. So, the funds must be used for what is defined as qualified acquisition costs—the cost of buying, building or rebuilding a home plus any usual or reasonable settlement, financing or other closing costs. Those funds must be used within 120 days of receiving the distribution.

 

Submitted By:

 

Diane Pyshos

Sr. Mortgage Consultant, A & N Mortgage Services, Inc.

dianep@anmtg.com    312-909-9718

NMLS #137800   Company ID #19291

Offices in Chicago, IL and Union Pier, MI