Fannie Mae HomePath Financing

by Jeff
(California)

Ask Kate about Fannie Mae HomePath Financing and debt calculations: Hi Kate, Is it true that HomePath financing allows you to purchase sole and separate but now you have to include spouse's debt? It's very confusing.

Jeff continues... I was married last year and am trying to buy a home. My wife had a short sale 2 years ago prior to marrying me and is self employed, with a lower than required credit score (not by much).

Although she makes decent money on paper, it looks bad for tax returns and she is dragging my DTI (debt to income ratio) down since for FHA you have to look at her debt but not count her income.

If we are able to buy we will be in a much better situation than we are while renting. Our payment will be less each month pretty substantially. I am nervous and just wanting to confirm that Fannie Mae Homepath Financing allows a spouse to qualify on their own. Thanks!

Kate Answers: Fannie Mae Homepath Financing

Dear Jeff,

Can they, will they, do they... and that pretty much sums it up.

Here's the real question. Will financing and buying a house sole and separate from your wife without counting her debt be approved under your circumstances?

While HomePath Financing mirrors Fannie Mae's basic underwriting guidelines, there are too many parameters to each loan program to give a reliable answer.

Fannie Mae Guidelines

I think of Fannie Mae guidelines like this - an old fashioned hat rack with several pegs. A downpayment peg, a credit peg, a debt ratio peg, one for appraisal and another for savings. Underwriters are looking for several reasons to approve your loan (which pegs they can hang the hat on).

For example, are you a home buyer with 20 percent to put down? If so, you may get more latitude in one area than someone with a 3 or 5 percent downpayment.

Individual Mortgage Companies

In addition to Fannie Mae guidelines, individual lenders layer their own lending requirements. After a lender approves and funds a HomePath mortgage, they will sell the loan or the servicing to Fannie Mae, in most cases.

But that means they become responsible for the loan, if for some reason they can't sell it. This can make some lenders skittish and prone to underwrite even tougher, especially in today's environment - because they don't want to be left holding the bag, or in my example, the hat.

So it is important to address the question of buying sole and separate when you apply for HomePath financing. Write a letter explaining why you want to buy the property in your name only and why you don't intend to include your wife in the financing.

Include numbers showing how the mortgage can help you financially, for example that the monthly house payment is less than your rent. Do not assume the lender can or will extract that data from your mortgage application.

Understanding Fannie Mae Underwriting

Once I was working with a married couple who had borderline debt ratios. Underwriting was feeling nervous about their application. But when I explained that they were newly weds and prior to getting married were paying separate rents, the new monthly house payment made more sense, even if it was a little higher than the underwriter would have preferred.

Of course, I included both rental agreements and 6 months of cancelled rent checks to verify their combined rents exceeded the proposed mortgage payment.

Shopping Fannie Mae HomePath Financing

But don't be surprised if the mortgage company seems suspicious. They are trying to weed out potential borrowers who are attempting to defraud them.

Remember, shopping for HomePath financing is no different than shopping for other types of mortgages. Talking to a few different lenders will give you a feel for the reaction to purchasing the home sole and separate from your wife. Go to 6 Steps to Finding and Comparing Mortgage Lenders on my website for more information.

Comment and Link To This Page

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Best wishes,

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