Banks requested 15% down for 3-units. Is that a Fannie Mae voilation?

Question

Hello!

I'm looking for guidance/advice.

I've applied for a conventional loan: 3 units, owner occupied, NJ, 5% down.

I have enough W2 income to cover the loan and additionally, there are two units rented already.

Several banks said I have to put a 15% downpayment.

Does it violate Fannie Mae guidelines? Are these guidelines enforceable? Or is it the bank's discretional decision to follow/not to follow FM guidelines?

Thanks for any insights/suggestions in advance,

Matt Devincenzo · Answer

It's an overlay...the guidelines are minimum standards for a conventional loan, it doesn't mean that a lender has to give you those loan terms. It may be worth asking why they say you need 15% if the guidelines allow as low as 5%? It may be there is another guideline that is shifting the math on the loan, or that the secondary market has no appetite currently for the 5% DP loans. That's often part of the equation, if the secondary market isn't/won't be buying the loan the lender may not offer those terms because they don't want to hold it on their books.

Jared Rine · Answer

@Olga Burninova..find a good mortgage broker and get the loan done. I would also be adamant about why they need 15% vs. 5% down. What it sounds like is an overlay at the bank you applied to.  Assuming that what you're stating is all checks out, you should easily qualify with a lender who doesn't have conventional overlays.  I'd say to call me if this was in CA.

Jacob Sherman · Answer

the 5% is minimum and that changed this last November . Not all banks are participating in the program and have overlays to minimize risk not to only have 5% equity in a loan

Olga Burninova · Answer

Thank you, David.

it's a purchase. and yes, the bank did an appraisal, and the two units occupied (rent roll) were backed up with a market evaluation.

Moreover, I have a high enough income on my W2 and my DTI will be 25%.

my broker and I were super surprised and couldn't figure out the bank's decision.

Russell Brazil · Answer

Banks can lend out at any terms they want. It merely needs to meet Fannie Mae's minimum guidelines for them to sell the loan to Fannie Mae. They are free to have more restrictive terms, or even less restrictive if they wanted to not sell the loan.

Olga Burninova · Answer

thank you, Matt. Neither bank didn't provide any explanation of what terms I and my loan didn't pass.

One bank asked to show 6 months reserve which I did and still requested 15%. Even though they didn't provide an official letter of denial. It's odd because without a letter I can't get out of the deal.

David M. · Answer

@Olga Burninova

Its not a violation.  Just because the loan can be originated with as little as 5% down, doesn't mean that it has to be.  Plenty of people get loans with something other than 5% down.  Lenders can always be "tighter" but can't go the other way if they intend to resell the loan to Fannie Mae, etc.

Did you find out why they said 15% down?

How did you figure on being able to cover the mortgage?  Did you take into account 75% of the rent?  There is also that provision of what if I think its like if all or but just one of the units is empty (I forget the exact nature or term, but it can be restrictive).

Its this a purchase or refi?

Banks requested 15% down for 3-units. Is that a Fannie Mae voilation?

Most Popular Reply