Among several updates to lending guidelines at Freddie Mac are changes to requirements for cash contributed by borrowers and cashout refinance transactions.
On purchases of primary residences where gift funds are provided by a person related to the borrower and the loan-to-value ratio exceeds 80 percent, Freddie is eliminating the requirement that the borrower contribute at least five percent of his or her own funds.
The five percent contribution requirement is also being removed from loans where an unsecured loan that is an Employer Assisted Homeownership Benefit is utilized.
The updates were spelled out Wednesday in Bulletin 2015-16.
In addition, borrowers won’t have to contribute five percent of personal funds just because the property is a manufactured home — though a minimum contribution will be required in some cases.
The update applies to all loans
with settlement dates on or after Oct. 1.
Refinances with no cashout will no longer need any seasoning to refinance a purchase-money mortgage.
On cashout refinances, the McLean, Virginia-based company will no longer require seasoning when one of the borrowers inherited the property. Previously, Freddie required at least one of the borrowers to have been in on title at least six months prior to the note date.
Freddie noted that when a settlement/closing disclosure statement is unavailable, a trustee’s deed will now be acceptable.
The revised seasoning and cashout requirements are immediately in effect.
In addition, on loans where the property hasn’t been owned six months, Freddie currently requires that the maximum loan amount on cashout transactions doesn’t exceed
the original purchase price plus closing costs, financing costs and prepaids/escrows. On loans
with settlement dates on or after Dec. 16, Freddie will begin requiring that any gift funds used to purchase the property be deducted from the total.
Freddie currently requires that when credit cards, cash advances or unsecured lines of credit are used to pay fees associated with the mortgage process — sellers currently need to verify that the borrower has enough cash to pay the charges or advances and verify that the payment for the amount charged or advanced
is included in the DTI ratio.
But on loans with settlement dates on or after Oct. 26, sellers can either
verify that the borrower has enough cash to pay the charges or advances or verify that the payment for the amount charged or advanced
is included in the debt-to-income ratio.
On loans with settlement dates on or after Oct. 26, Freddie will no longer require additional reserves when the current residence won’t be sold by the closing date or the current residence is being converted to a second home or investment property. Instead, just the standard reserves and rental income requirements apply.
Among several other changes are new definitions for hotel condominiums and relocation mortgages.
