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NORTH CAROLINA:  Lake Norman, N. Charlotte, Cornelius, Huntersville, Davidson, Mooresville & Denver areas

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Mortgage News

Our mortgage partner, Brad Dinkel with Allen Tate Mortgage, provides us with industry news so we can keep you on the cutting edge of real estate investment financing:

 

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7/28/08 - The Kiplinger Tax Letter reports...

Like-Kind Swaps:  IRS is easing up on earnings on escrows in tax deferred exchanges.

Sellers will not owe tax if the exchange proceeds are $2 million or less, the IRS says in final regulations: Those swaps are exempt from the general rule. That taxes sellers on the entire amount of the earnings on the sales proceeds, even if they pay part or all of that money to the exchange intermediary as a fee.

The change benefits small nonbank exchange facilitators by helping them to stay competitive with banks that perform the same service. Unlike the banks, the small nonbank businesses typically keep some earnings to augment the fee. Since most of the swaps they broker are $2 million or less, the ruling will let them avoid paying earnings to clients and raising their basic fee to make up the difference.

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7/15/08 - Fannie Mae and Freddie Mac have decided to change the way they view a lease agreement on a home that a buyer lives in and will rent out to offset the debt so they may qualify for a new home

Unless a borrower has 30% equity in their current primary residence, they cannot use a lease to offset the mortgage payment.

EXAMPLE: You are a buyer wanting to use your townhome as a rental and move up to buy a house. You financed 2 years ago with a 90% Loan. Even if you have had 5% per year appreciation, the rental income on your townhome will not be able to be used to offset the mortgage payment as you would only have 20% equity in the property. Read below for a better breakdown.

Borrowers who currently own their home typically have three options when they decide to purchase a new principal residence. They can:

•

sell the current residence and pay off the outstanding mortgage,

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convert the property to a second home, assuming they can qualify with both the existing and new mortgage payments, or
• convert the property to an investment property and provide documentation that they will rent the property and use the income to offset the mortgage payment.

 

 

Current Requirements

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Rental income that will be generated from the prior principal residence is based solely on a fully executed lease agreement for that property provided by the borrower (now landlord).

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If the lender uses current lease agreements, the net rental income will be 75 percent of the gross rent from the lease agreement, with the remaining 25 percent being absorbed by vacancy losses and ongoing maintenance expenses.

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Minimum reserves are required for investment properties: 2 months for one-unit properties, and 6 months reserves for two- to four-unit properties. Minimum reserves are not required for second home transactions.

New Requirements

Conversion to an Investment Property

Fannie Mae will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (derived from an appraisal, AVM, or BPO, minus outstanding liens).

The rental income must be documented with:

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a copy of the fully executed lease agreement; and

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the receipt of a security deposit from the tenant and deposit into the borrower’s account.

If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

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Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

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6 months of PITI for both properties is required to be in reserves.

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