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B2-1.3-01, Purchase Transactions (12/16/2020)

Introduction
This topic contains information on purchase transaction eligibility requirements, including:

General Purchase Transaction Eligibility Requirements

A purchase money transaction is one in which the proceeds are used to finance the acquisition of a property or to finance the acquisition and rehabilitation of a property. The table below provides the general requirements for purchase money mortgage transactions. Certain mortgage loans and products may have different eligibility requirements for purchase mortgage transactions. If applicable, the differences will be stated in the specific mortgage loan or product topic section.

✓ General Requirements
  The minimum borrower contribution requirements for the selected mortgage loan type must be met.
  Proceeds from the transaction must be used to

  • finance the acquisition of the subject property,

  • finance the acquisition and rehabilitation of the subject property,

  • convert an interim construction loan or term note into permanent financing, or

  • pay off the outstanding balance on the installment land contract or contract for deed.
  Proceeds from the transaction may not be used to give the borrower cash back other than the following:

  • an amount representing reimbursement for the borrower’s overpayment of fees and charges, including refunds that may be required in accordance with certain federal laws or regulations. The settlement statement must clearly indicate the refund, and the loan file must include documentation to support the amount and reason for the refund; and

  • a legitimate pro-rated real estate tax credit in locales where real estate taxes are paid in arrears.

Note: If the borrower receives cash back for a permissible purpose as listed above, the lender must confirm that the minimum borrower contribution requirements associated with the selected mortgage product, if any, have been met. Reimbursements or refunds permitted above may also be applied as a principal curtailment in accordance with B2-1.5-05, Principal CurtailmentsB2-1.5-05, Principal Curtailments. A pro-rated real estate tax credit is not an interested party contribution, and it cannot be considered when determining if the borrower has sufficient assets for the transaction.

Requirements for Purchase Transactions with LTV, CLTV, or HCLTV Ratios of 95.01 – 97%

If the LTV, CLTV, or HCLTV ratio exceeds 95% for a purchase transaction, the following requirements apply.

Criteria Requirements
LTV, CLTV, or HCLTV Ratio 95.01 to 97%

Note: The CLTV ratio can be up to 105% if the subordinate lien is a Community Seconds loan.
Loan Type Fixed-rate loans with terms up to 30 years.

Note: High-balance and ARM loans are not permitted.
Property and Occupancy One-unit principal residence. Manufactured housing is not permitted, unless the property meets the MH Advantage requirements.

All borrowers must occupy the property unless there is a Community Seconds subordinate lien.
Borrower Eligibility

  • At least one borrower must be a first-time homebuyer, as indicated on the Form 1003 in the Declarations section, when at least one borrower responds “No” to the question about having an ownership interest in a property in the last three years.

  • At least one borrower on the loan must have a credit score.
Homeownership Education If all borrowers are first-time homebuyers, homeownership education is required. See  B2-2-06, Homeownership Education and Housing CounselingB2-2-06, Homeownership Education and Housing Counseling for requirements.
Underwriting Method DU only
Reserves Reserves requirements will be determined by DU.
Other All other standard Selling Guide policies apply.

Note: The above requirements do not apply to HomeReady mortgage loans. See  B5-6-01, HomeReady Mortgage Loan and Borrower EligibilityB5-6-01, HomeReady Mortgage Loan and Borrower Eligibility, for requirements for HomeReady mortgage loans with LTV, CLTV, or HCLTV ratios of 95.01 – 97%.

Non-Arm's Length Transactions

Non-arm's length transactions are purchase transactions in which there is a relationship or business affiliation between the seller and the buyer of the property. Fannie Mae allows non-arm’s length transactions for the purchase of existing properties unless specifically forbidden for the particular scenario, such as delayed financing. For the purchase of newly constructed properties, if the borrower has a relationship or business affiliation (any ownership interest, or employment) with the builder, developer, or seller of the property, Fannie Mae will only purchase mortgage loans secured by a principal residence. Fannie Mae will not purchase mortgage loans on newly constructed homes secured by a second home or investment property if the borrower has a relationship or business affiliation with the builder, developer, or seller of the property.

Purchase of Preforeclosure or Short Sale Properties — Allowable Fees, Assessments, and Payments

Borrowers may pay additional fees, assessments, or payments in connection with acquiring a property that is a preforeclosure or short sale that are typically the responsibility of the seller or another party. Examples of additional fees, assessments, or payments include, but are not limited to, the following:

  • short sale processing fees (also referred to as short sale negotiation fees, buyer discount fees, short sale buyer fees);

    Note: This fee does not represent a common and customary charge and therefore must be treated as a sales concession if any portion is reimbursed by an interested party to the transaction.

  • payment to a subordinate lienholder; and

  • payment of delinquent taxes or delinquent HOA assessments.

The following requirements apply:

  • The borrower (buyer) must be provided with written details of the additional fees, assessments, or payments and the additional necessary funds to complete the transaction must be documented.

  • The servicer that is agreeing to the preforeclosure or short sale must be provided with written details of the fees, assessments, or payments and has the option of renegotiating the payoff amount to release its lien.

  • All parties (buyer, seller, and servicer) must provide their written agreement of the final details of the transaction which must include the additional fees, assessments, or payments. This can be accomplished by using the Request for Approval of Short Sale or Alternative Request for the Approval of Short Sale forms published by the U.S. Treasury or any alternative form or addendum.

  • The settlement statement must include all fees, assessments, and payments included in the transaction.

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2020-07 December 16, 2020
Announcement SEL-2019-08 October 02, 2019

 

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