Fannie Mae Second Home DTI Guidelines (1)

Fannie Mae Second Home DTI Guidelines On Conventional Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About Fannie Mae Second Home DTI Guidelines On Conventional Loans 

Fannie Mae Second Home DTI Guidelines on Conventional Loans is capped at 50% DTI. However, both Fannie Mae and Freddie Mac allow non-occupant co-borrowers to be added on conventional loans. 

  • Homebuyers cannot purchase non-owner occupant homes with government loans
  • Government Loans are FHA, VA, and USDA
  • Government loans are for owner occupant homes only
  • Fannie Mae and Freddie Mac allow second and investment home financing on conventional loans
  • Minimum down payment required on second home financing is 10%
  • Investment properties require 15% to 30% down payment on conventional loans
  • Multi-Unit properties require larger down payments
  • The down payment requirement is dependent on the type of property on investment home financing

Conventional Loans Explained

Conventional Loans are often called conforming loans.

  • This is because conventional loans need to conform to Fannie Mae and/or Freddie Mac Mortgage Guidelines
  • Fannie Mae and Freddie Mac do not insure or guarantee conventional loans
  • Conventional Loans are not insured and/or guaranteed by any government agency like FHA, VA, USDA Loans are
  • Fannie Mae and Freddie Mac purchase mortgages from lenders
  • In order for Fannie/Freddie to purchase loans by lenders on the secondary mortgage market, conventional loans need to conform to their lending guidelines
  • This is why conventional loans are called conforming loans because they need to conform to Fannie Mae and/or Freddie Mac Agency Guidelines

This is why lenders require borrowers to meet conforming guidelines.

Fannie Mae Second Home DTI Guidelines: Types Of Conventional Loans

There are three types of conventional loans:

  • Owner-Occupant Primary Residence 
  • Second Homes
  • Investment Homes

Each of the above loan program has its own conforming loan guidelines. Mortgage rates on owner-occupant homes and second homes have the lowest mortgage rates on conventional loans. Investment property loans have higher rates than owner-occupant and second homes. Lenders consider investment homes higher risk. Therefore, the higher the risk the higher the rates.

Mortgage Rates On Second Versus Investment Homes

Mortgage rates on second homes are much lower than investment properties.

Lenders consider investment home mortgages higher risk. In the even an economic event were to happen to a property owner, they would take care of their primary and/or second home first before any investment property. This is the ideology lenders have in considering investment properties as riskier investments.

Fannie Mae Second Home DTI Guidelines: Qualifying For Second Home Financing

Fannie Mae and Freddie Mac require 10% down payment on second home financing.

  • Potential rental income cannot be used
  • Borrowers need to qualify for both their primary and future second home purchase
  • Maximum debt to income ratio allowed is 50%
  • Fannie Mae and Freddie Mac both have its own lending guidelines when it comes to non-occupant co-borrowers
  • On condominium financing, only warrantable condos are eligible for conventional loans
  • Warrantable condos are condominiums where the condo complex consists of 51% or more owner-occupant condo owners
  • If more than 51% of the condo owners in a condo complex are investors and not primary and/or second home owners, it is considered a non-warrantable condo complex

Non-warrantable condos are not allowed with conventional loans. Gustan Cho Associates has non-warrantable and condotel financing loan programs.

Adding Non-Occupant Co-Borrowers On Second Home Mortgages

Adding Non-Occupant Co-Borrowers On Second Home Mortgages

Fannie Mae and Freddie Mac are two separate government sponsored enterprises (GSE).

  • Although most guidelines are similar, there are differences
  • Fannie Mae and Freddie Mac are the two mortgage giants in the United States whose role is to provide liquidity in the mortgage markets
  • Fannie Mae and Freddie Mac are the two largest buyers of mortgages in the secondary mortgage markets
  • Lenders use their warehouse line of credit to fund loans after the loans are funded
  • Lenders sell the loans they fund on secondary market to larger mortgage bankers and/or financial institutions
  • These larger mortgage bankers and/or financial institutions then package up the mortgages they purchase and sell them to Fannie Mae or Freddie Mac
  • Due to Fannie/Freddie buying funded loans by lenders, it provide lenders liquidity in being able to keep repeating making more loans
  • Therefore, there is liquidity in the mortgage markets where it benefits borrowers to get home mortgages easily and at low mortgage rates
  • Fannie Mae allows non-occupant co-borrowers on second home mortgages
  • Freddie Mac also allow non-occupant co-borrowers on second homes
  • Both Fannie Mae and Freddie Mac allows two or more families to purchase a second home

Both second home buyers can be on the second home loan as co-borrowers.

NON-QM Loans On Second And Investment Home Financing

Gustan Cho Associates offers alternative financing loan programs on second and investment home loans. Gustan Cho Associates has a national reputation of being a one-stop mortgage shop. We have no lender overlays on government and conventional loans. We also have dozens of non-QM and alternative financing loan programs. NON-QM Loans are nonconforming loans mortgage programs we offer. There is not a non-QM loan program that is available in today’s market that we do not offer. Some of our more popular loan programs are asset-based financing where borrower’s credit/income is not required. We also have non-QM loans with no income tax returns required. Gustan Cho Associates has bank statement loans for self employed borrowers, mortgages one day out of bankruptcy, fix and flip loans for real estate investors, ITIN loan programs, condotel and non-warrantable condos, and dozens of other non-QM mortgage programs. For more information, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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