What percentage can you gross up social security income

Updated September 30, 2020-Clarifying self-employment temporary guidance Updated October 13, 2020-Clarifying social security tax exempt income and tax return requirement Reminder: As of October 15, 2020, tax extensions are not permitted. If tax returns are required, 2019 tax returns must be provided. Effective immediately, NewRez will align with Freddie Mac Bulletins 2020-31 and 2020-36 and Fannie Mae Announcements SEL-2020-04 and SEL-2020-05. See agency announcements for complete details. Below is a highlight of these clarifications and updates, along with additional NewRez guideline updates.

Updated September 30, 2020-Clarifying self-employment temporary guidance

Updated October 13, 2020-Clarifying social security tax exempt income and tax return requirement

Freddie Mac SEL-2020-31

New Construction Real Estate Taxes

• New construction properties: When the real estate tax amount is not yet available, the real estate tax amount included in the monthly housing expense must be based on the value of the improvements plus the land value.

Mortgages Secured by Second Homes and Investment Properties

• Clarification that if the borrower does not own a primary residence, the borrower’s monthly rent payment must be included in the monthly housing expense-to-income ratio.
• Rental history must be documented with one of the following:
  • Direct verification of rent from a management company, or
  • Direct verification of rent from an individual landlord supported by two months of canceled checks or other evidence of two months’ payments, or
  • A copy of the current, fully executed lease agreement supported by two months of canceled checks or other evidence of two months’ payments, or
  • Six months of canceled checks or bank statements supporting consistent payments in the amount used in qualifying
• A rent-free letter is required if the borrower lives rent free.

Mortgages with a Non-occupant Co-borrower

• The monthly housing expense (PITIA) for each borrower’s primary residence must be included in the monthly housing expense-to-income ratio.
• Rental history must be documented with one of the following:
  • Direct verification of rent from a management company, or
  • Direct verification of rent from an individual landlord supported by two months of canceled checks or other evidence of two months’ payments, or
  • A copy of the current, fully executed lease agreement supported by two months of canceled checks or other evidence of two months’ payments, or
  • Six months of canceled checks or bank statements supporting consistent payments in the amount used in qualifying
• A rent-free letter is required if the borrower lives rent free.

Debts with Ten (10) or Fewer Payments

• Clarification that alimony and child support, with proper documentation, may be excluded from the DTI.

Appraisal Requirements

• Building sketch is required for interior and exterior inspections.
• The building sketch requirement that each unit’s entry way be included on the building sketch exhibit for all 2- to 4-unit properties has been removed.
• When any subject property has a floor plan that is unusual or is functionally obsolete, the appraiser is required to provide a floor plan sketch that reflects this.

Freddie Mac 2020-036

Cash-out Refinance: Leasehold Mortgages and Cooperative Loans

• Leasehold Estate: At least one borrower must have been lessee on the ground lease or lease agreement for at least six (6) months.
• Cooperative Unit: At least one borrower must have held cooperative shares of the cooperative unit for at least six (6) months.

Social Security Income

• Fifteen percent (15%) of Social Security income can be grossed up (i.e., retirement income, disability benefits, survivor benefits and Supplemental Security Income) without documentation validating that the portion of the Social Security income is tax exempt. This 15% may be grossed up by 25%, which is the standard gross up percentage. Existing documentation requirements continue to apply when grossing up more than 15% of Social Security income for qualifying. This guidance may be applied to Fannie Mae DU loans as well.

Example

Social security income = $1,000

$1,000 x 15% = $150

$150 x 25% = $37.50

Total income = $1,037.50

If the borrower requires the full $1,000 to be grossed up, evidence the income is tax exempt is required.

Mortgages with Resale Restrictions

• Freddie Mac is extending the right of first refusal time period requirements not to exceed 120 days (From 90 days).

Wedding Gifts

• Wedding gift funds are an eligible source of funds for a primary residence when the gift funds were deposited in the borrower’s account within 90 days (previously 60 days) of the date of the marriage license or certificate.

Property with an Accessory Dwelling Unit (ADU)

• The following clarifications are being provided:
  • Only one ADU is permitted.
  • ADU must be subordinate in living size and contribute less to the property than the primary dwelling unit.
  • Appraiser must consider, among other things, the unit’s utility, and highest and best use.
  • Legal or legal non-conforming zoning: One comparable sale with an ADU, if available, should be provided.
  • Illegal zoning: At least two comparable sales with an ADU must be provided.
• Although Freddie Mac will now permit a Manufactured Home as an accessory unit, NewRez will not align with this update.

Fannie Mae SEL-2020-04

Solar Panels

• NewRez is currently reviewing the Fannie Mae solar panel guidance and will issue a separate announcement.

Fannie Mae SEL-2020-05

Property with an Accessory Dwelling Unit

• Fannie Mae has clarified and updated the following for properties with an ADU:
  • Only one ADU is permitted.
  • The ADU must:
    • be subordinate in size to the primary dwelling
    • have separate means of ingress/egress, kitchen, sleeping area, bathing area and bathroom
  • A kitchen is defined as having cabinets, countertop, sink, stove, or stovetop hookup (hotplates, microwaves, toaster ovens are not stove substitutes).
  • An independent second kitchen by itself does not constitute an ADU.
  • The removal of a stove does not change the ADU classification.
• Illegal zoning: At least two comparable sales with an ADU with the same non-compliant zoning is required.
• Although Fannie Mae will now permit a Manufactured Home as an accessory unit, NewRez will not align with this update.

Additional Product Guidance

Year-to-Date Profit and Loss Statement and Balance Sheet

• NewRez will align with the Fannie Mae and Freddie Mac COVID-19 temporary guidance permitting a year-to-date profit and loss statement and balance sheet dated no more than 60 days prior to the Note date (previously 30-days).
• All other temporary guidance related to self-employed borrowers remains, including a quarterly or month-to-month year-to-date profit and loss statement and balance sheet, per Announcement 2020-073 and the Temporary Guidance for Agency Self-Employed Borrowers job aid.

The below guidelines will no longer be available and removed from the Conventional Conforming product profiles:

• Alimony and Child Support exception allowing for three (3) months receipt of alimony or child support.
• Student Loans for Medical Doctors and Dentists.

Visa Eligibility

• NewRez added the following eligible Visa types to the Conventional Conforming product profiles:

E-1, E-2, E-3, E-3D, G-1, G-2, G-3, G-4, G-5, H-1B, H-1B1, H-1B2, H-1B3, H-1C, H-4,L-1A, L-1B, L-2, O-1A, O-1B, TN

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