Today’s blog goes over one of the updates announced in SEL 2018-08 by Fannie Mae. I want to focus on the improvements for a borrower using “employment-related assets as income”.
Before we get to that update, I have to mention the most asked question I get on this income type is:
What are employment related assets?
The short definition is any money you saved in a retirement vehicle while working. I know sometimes people think that employment-related means only if you had a job, but that is not true. All income type that supply your 401K, SEP, Roth IRA, will qualify. Your career could have been spent as a self-employed person, a real estate investor, employee, or heck invested your rich aunt’s inheritance into your 401K. It all qualifies!
Now onto the changes with this announcement. Fannie increased the HCLTV from 70 up to 80 if the borrower is 62 years old at the time of closing, no other changes were announced, but that one is a great change on its own!
As of 2016 both Fannie and Freddie offer this program. Even though Freddie is the newbie for this income type (only started in 2016) they have offered the better product when you compared them side by side.
As a refresher, this income type really requires the reader to pull up the guidelines and carefully go through multiple bullet points to make sure the borrower meets all the requirements…and there is a bunch of bullet points!
A quick summary of the differences:
- Allows an 80% CTLTV as long as the borrower is 62 years old, 70% if younger than 62
- Only allowed for a principal residence and second homes. The good news here, the primary can be one to four units.
- The borrower still qualifies even if the assets require penalties and tax reductions for early withdrawal.
- Assets in retirement accounts must be reduced by 30% when determining final numbers
Freddie is a little more aggressive on this program overall. If you have to choose between them you will get more income on the same amount of savings using the Freddie program.
- 80% CLTV but you must be 62 years old to qualify for this program.
- One and two unit primaries and second homes
- Freddie does not require the reduction of retirement assets by 30%
- The income must be divided 360 month calculation regardless of the loan term.
I wrote about this little known deal saver last year. I still believe every mortgage company should keep this income type in the tool bag if your have senior citizens borrowers who have a great savings nest egg to work with.
This wraps up this week’s blog. Hope that helps you get one more deal out there. We’ll talk to you next week.