When the borrower owns mortgaged real estate, the status of the property determines how the existing property's PITIA must be considered in qualifying for the new mortgage transaction. If the mortgaged property owned by the borrower is
an existing investment property or a current principal residence converting to investment use, the borrower must be qualified in accordance with, but not limited to, the policies in topics B3-3.1-08, Rental Income, B3-4.1-01, Minimum Reserve Requirements, and, if applicable B2-2-03, Multiple Financed Properties for the Same Borrower;
an existing second home or a current principal residence converting to a second home, the PITIA of the second home must also be counted as part of the borrower's recurring monthly debt obligations; or
the borrower's current principal residence that is pending sale but will not close (with title transfer to the new owner) prior to the subject transaction, the lender must comply with the policies in this topic.
In conjunction with the policies in this topic, the lender must also comply with the policies in B2-2-03, Multiple Financed Properties for the Same Borrower, B3-3.1-08, Rental Income, and B3-4.1-01, Minimum Reserve Requirements, as applicable.
When a borrower sells a mortgaged property and the property purchaser assumes the outstanding mortgage debt without a release of liability, the borrower has a contingent liability.
The lender is not required to count this contingent liability (PITIA) as part of the borrower’s recurring monthly debt obligations if the lender verifies that the property purchaser has at least a 12-month history of making regular, timely payments for the mortgage. The lender can document this by obtaining
evidence of the transfer of ownership;
a copy of the formal, executed assumption agreement; and
a credit report indicating that consistent and timely payments were made for the assumed mortgage.
If the lender cannot document timely payments during the most recent 12-month period, the applicable mortgage payment must be counted as part of the borrower’s recurring monthly debt obligations.
When a borrower’s interest in a property is bought out by another co-owner of the property, as often happens in a divorce settlement, but the lender does not release the borrower from liability under the mortgage, the borrower has a contingent liability.
If the lender obtains documentation to confirm the transfer of title to the property, this liability does not have to be considered as part of the borrower’s recurring monthly debt obligations.
If the borrower's current principal residence is pending sale, but the transaction will not close with title transfer to the new owner prior to the subject transaction, and the borrower is purchasing a new principal residence, the current PITIA and the proposed PITIA must be used in qualifying the borrower for the new mortgage loan.
However, Fannie Mae will not require the current principal residence's PITIA to be used in qualifying the borrower as long as the following documentation is provided:
the executed sales contract for the current residence, and
confirmation that any financing contingencies have been cleared.
The table below provides references to the Announcements that have been issued that are related to this topic.