New Guidelines Every Realtor, Lender and Seller Should Know.

One of my primary lenders just issued new guidelines on how a property being converted from Primary Residence to Pending Sale, 2nd Home or Investment Property should be treated. These are quite a bit stricter then I've seen in the past and are probably indicative of things to come.

If you are a Realtor and are suggesting to a Seller to retain a property as an Investment Property, or your Seller would like to keep their property as for that purpose, you had better do some digging and make sure that they will still qualify for a new loan. If they are trying to close on their new home prior to selling their current home you also could run into some problems.

If you are a Lender and are trying to prequalify a Borrower who is retaining, or hasn't sold their current Primary Residence, you had better check with you lender to make sure that you are meeting credit guidelines.

If you are a Buyer or Seller you need to understand what you options are given your income, assets and credit. Your plans just might not work.

In today's credit climate, it is imperative that you are confident that your clients are truly in the position to accomplish their goals if it includes the purchase of another property.

As always, I cannot stress the importance of working with a Certified Mortgage Planning Specialist who can help walk you and your clients through the new mortgage maze.

Here are the Guidelines.

"Conversion of Primary Residence Policy

When qualifying borrowers who are purchasing a new Primary Residence and retaining their existing primary residence:

Pending Sale

If the current principal residence is a pending sale, but the transaction will not be closed (with title transfer to a new owner) prior to the new transaction:

• Both the current and proposed mortgage payments must be used to qualify the borrower

Conversion to Second Home

If the current principal residence is being retained as a Second Home:

• Must meet qualifications as a Second Home as defined in the Credit Policy Manual
• Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction
• Property has not been listed for sale in the past 90 days (unless evidence of job transfer is provided)
• Property has been owned at least 12 months (unless evidence of job transfer is provided)
• Reserves equivalent to:

1) 6 months PITI for both properties is required; OR
2)2 months PITI if there is documented equity of at least 30% in the existing principal residence (as determined by an appraisal or AVM).

Conversion to Investment Property

If the current principal residence is being retained as an Investment property

• Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction
• Property has not been listed for sale in the past 90 days (unless evidence of job transfer is provided)
• Property has been owned at least 12 months (unless evidence of job transfer is provided)
• Reserves equivalent to 6 months PITI for both properties is required.
• Up to 75% of Rental Income may be used to offset the mortgage payment if:

1)There is documented equity of at least 30% in the existing principal residence (as determined by an appraisal or AVM); AND
2) Provide a copy of the fully executed lease agreement; AND
3)Provide evidence of receipt of a security deposit from the tenant and evidence that it has been deposited into the borrower's account.

Feel free to contact me should you have any questions.

Larry Morris, CMPS
503-421-0096