In an attempt to expand accessibility to mortgages to more individuals, government-controlled GSE Freddie Mac has announced that it will allow would-be borrowers to “leverage financial assets such as retirement accounts as qualifying income when applying for a mortgage loan.” This would enable borrowers to use their individual retirement accounts (IRAs), 401(k)s, retirement account distributions, and funds from the sales of businesses to boost their qualifying income when applying for a mortgage. However, these funds must be accessible in order to qualify, meaning that borrowers cannot count funds that will be assessed fees or penalties upon withdrawal[1].

The rule is not actually particularly new, as it went quietly into effect in spring 2011. However, few borrowers or lenders are aware of the policy, so Freddie Mac is hoping that a publicity blitz will help make more retiring baby boomers and “savvy homebuyers who have limited incomes but substantial financial assets” more knowledgeable about the issue. In order to determine how your financial assets would affect your qualifying income, multiple your eligible assets by 70 percent, subtract transaction costs associated with the purchase of the property in question, then divide by 360 months. Under Freddie Mac’s policy, this amount would be added to your monthly income[2]. “Freddie Mac’s requirements offer a potentially big deal for many prospective homebuyers,” said GSE vice president Christina Boyle on Freddie Mac’s “Executive Perspectives Blog” earlier this week. She added that “it’s also important to remember that Freddie Mac has long allowed lenders to use income from dividends, interest payments, trust distributions, and social security payments in calculating a borrower’s qualifying income.”

Do you think that this is a good lending policy? Could it help you buy a home?

[1] http://www.dsnews.com/articles/freddie-mac-allows-financial-assets-to-contribute-borrowers-qualifying-income-2013-05-13

[2] http://www.freddiemac.com/news/blog/christina_boyle/20130513_financial_assets.html

by Carole VanSickle