September 19th, 2008 11:28 AM

Fannie Mae has announced new guidelines concerning the omission of the borrower's current PITI in the debt ratio if their current residence is under contract and the borrower has sufficient reserves. This new guideline should help borrowers in scheduling closing. I have listed the guideline below.

Fannie Mae Announcement 08-22 Page 8

Principal Residences Pending Sale

In Announcement 08-16, Fannie Mae provided guidance on how to qualify a borrower under three different scenarios:

the current principal residence is pending sale but the transaction will not close (with title transfer to the new owner) prior to the new transaction,

conversion of a current principal residence to a second home, and

conversion of a current principal residence to an investment property.

Fannie Mae is clarifying the first scenario – when a current principal residence is pending sale but will not close prior to the new transaction.

If the borrower’s current principal residence is pending sale, and he or she is purchasing a new principal residence, both the current and proposed mortgage payments must be used in qualifying the borrower for the new mortgage loan. In addition, Fannie Mae will now require minimum reserves of 6 months principal, interest, taxes, and insurance (PITI) for both properties, but will allow a reduction to 2 months if 30 percent equity in the existing principal residence is documented with a current appraisal, broker price opinion, or automated property valuation.

Fannie Mae will not require the current principal residence’s PITI to be used in qualifying the borrower as long as the 6 months of reserves (or 2 months with documented equity) for both properties are documented and the following additional documentation is provided:

the executed sales contract for the current residence; and

confirmation that any financing contingencies have been cleared.

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