Thursday, June 2, 2011

Tighter Underwriting Guidelines from Fannie Mae

Fannie Mae has just tightened their underwriting guidelines regarding the use of retirement accounts as reserves.

Borrowers are sometimes required to have reserves to get approved for a loan. Reserves are funds that the borrower has left over after paying for the down payment and closing costs. 60% of the vested amount in a retirement account can be used as reserves. That is not a change from the former guidelines.

However, the new guidelines state that if the borrower is only allowed to withdraw money from the retirement account because of employment termination, retirement, or death, then none of the money in the retirement account can be counted as reserves.

This is important to know because the underwriting software used to issue pre-approvals does NOT determine whether the money in a retirement account can be counted as reserves. If the lender pre-approving your client doesn't check to see if the reserves can be counted before using the software, the pre-approval may be invalid.

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