B3-4.3-16, Credit Card Financing and Reward Points (08/04/2021)

Fannie Mae permits certain costs that must be paid early in the application process, such as lock-in fees, origination fees, commitment fees, credit report fees, and appraisal fees, to be charged to the borrower’s credit card because these fees do not represent extraordinary amounts and the credit card debt is considered in the borrower’s total monthly debt-to-income ratio. Borrowers are not required to pay off these credit card changes before closing. Under no circumstances may credit card financing be used for the down payment.

Lenders may allow credit card financing for the payment of common and customary fees paid outside of closing up to a maximum of 2% of the loan amount if the lender:

• confirms that the borrower has sufficient liquid funds (financial reserves) to cover these charges (in addition to funds needed for other closing costs and the down payment that they will be paying); or

• recalculates the credit card payment, per B3-6-05, Monthly Debt ObligationsB3-6-05, Monthly Debt Obligations, to account for the new charges and includes the updated payment in the qualifying ratio calculation.

For DU, lenders must apply this policy manually. The fees charged to the borrower’s credit card must be included as a closing cost in the loan application, and removed from any Borrower Paid Fees entered as an other credit for the fees paid outside of closing. Alternatively, the monthly credit card payment in the liabilities section of the loan application must be increased to include the charges if not reflected in the credit report.

Fannie Mae permits credit card reward points as acceptable funds for use towards closing costs, down payment and financial reserves, provided the reward points are converted to cash prior to the closing of the loan. The following requirements apply:

• If the credit card reward points are converted to cash and deposited into the borrower’s depository account (for example, checking or savings), no additional documentation is required unless the deposit is considered a large deposit.  In this event, the lender must follow the requirements in Evaluating Large Deposits in B3-4.2-02, Depository AccountsB3-4.2-02, Depository Accounts . 
• If the credit card reward points are converted to cash, but not deposited into a borrower’s depository account, the lender must provide evidence the reward points were
  • available to the borrower prior to the conversion, including verification of the cash value (for example, credit card reward statement prior to conversion); and
  • converted to cash prior to the closing of the loan.

For DU loan casefiles, if the reward points are not already converted to cash and deposited into a depository account, lenders must enter the cash value of the reward points as an Asset with an Account Type of "Other" and a description of "Liquid Asset". See  B3-4.4-02, Requirements for Certain Assets in DUB3-4.4-02, Requirements for Certain Assets in DU  for more information.