Conventional Loan Guidance on Assets for Income - Part 3
Our third a final dive into using assets as income is perhaps one of the most important. For both FNMA and FHLMC, using this type of income is prohibited on cash-out refinances. Both purchases as well as limited cash-out/no cash-out refinances are eligible. If a borrower is looking to take out $100,000 out of the equity of the home, this is simply not the type of income that will work to get the borrower qualified according to GSE guidance.
In addition to this, the property type for FHLMC must be a 1- or 2-unit primary residence or a second home. Note that investment properties are not eligible. Also, you will see that a triplex or quad is not eligible, even if the borrower is living in one of the units. FNMA is a little less specific and states that the number of allowable units is "as permitted by occupancy type." Overall, be careful with the property type. This can be easily overlooked as a loan officer is looking for creative ways to get a borrower qualified.
Finally, be mindful of the TLTV ratio. The maximum allowable TLTV percentage is 80% for FHLMC. No mortgage insurance = no problem. For FNMA, the maximum HCLTV is lower at 70%. The exception to moving higher than 70% for FNMA is that the borrower be at least 62 years of age at the time of closing. If so, the maximum increases to 80%. Again, no mortgage insurance = no problem. Never go beyond the 80% threshold - even if the borrower is 62 or older.
If you have made it through all three parts of the series of articles on this income type, congratulations! If you ran into some speed bumps that kept this income type from being used for your particular situation, it might be worth looking at those assets and seeing if using them in a different manner would be a possibility. For instance, many accounts do offer a certain level of interest and/or dividends that could possibly be helpful.
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