The changes to self-employment income policies affect calculation and documentation of business income where the borrower does not have a history of business income distributions. The Guide has been updated to provide an alternative approach in which the lender can verify by confirming the borrower has (1) access to the business income and (2) there is adequate liquidity in the business to support withdrawal of earnings. The previous method of verification remains in effect as an alternative lenders may use.
Also within the self-employment income portion of the update the Guide will now reflect that only the most recent year of individual and business income federal tax returns will be required for certain Desktop Underwriter (DU) case files as long as the returns show at least 12 months of self-employment income. The lender must also complete the Fannie Mae Cash Flow Analysis (Form 1084) or another acceptable form of cash flow analysis. The update also contains a minor clarification that broadens a reference to “salaried income” in a section regarding the need for a written evaluation of that income.
HomeStyle Renovation Loans
Fannie Mae approved lenders are allowed to deliver HomeStyle Renovation loans prior to completion of renovation work as long as the loan is provided with recourse. This approval will now be included as an addendum to the Master Selling and Servicing Contract (MSSC) eliminating the need for a master contract and credit variance. The requirements for removing recourse are being added to the Selling Guide. In addition Fannie Mae has added the Appraisal Update and/or Completion Report (Form 1004D) to its HomeStyle Completion Certificate (Form 1036) as evidence of the completion of renovation.
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