Relating to mortgage financing, Fannie Mae and Freddie Mac are two distinguished names that usually come up. Whereas each entities play a vital function within the housing market, they differ in numerous points, together with their insurance policies on the usage of inventory choices as a further revenue supply.
Freddie Mac’s Method
Freddie Mac acknowledges the worth of inventory choices and permits the usage of Restricted Inventory (RS) or Restricted Inventory Models (RSU) as one other type of revenue. These inventory choices are sometimes provided by employers in lieu of conventional bonuses or commissions. Nonetheless, to contemplate this revenue supply, Freddie Mac requires a two-year historical past of receipt.
To calculate the revenue from RS or RSU given as performance-based vesting, Freddie Mac follows a particular method. First, they multiply the 52-week common of the inventory as of the applying date by the whole variety of shares acquired over the previous two years (pre-tax). Then, this quantity is split by 24 months to find out the month-to-month revenue.
Fannie Mae’s Method
In distinction to Freddie Mac, Fannie Mae’s tips don’t handle the usage of inventory choices as an revenue supply. Fannie Mae doesn’t contemplate RS or RSU as an possibility when calculating revenue for mortgage financing functions. Subsequently, people relying solely on inventory choices might face limitations when in search of mortgage approval by way of Fannie Mae.
Understanding the variations between Fannie Mae and Freddie Mac is essential for people navigating the mortgage financing course of. Whereas Freddie Mac permits the usage of RS and RSU as a further revenue supply, Fannie Mae doesn’t contemplate inventory choices of their revenue calculations. It will be significant for debtors to concentrate on these distinctions and select the financing possibility that aligns with their particular circumstances.
As a mortgage dealer that offers immediately with lenders that make the most of Fannie Mae and Freddie Mac, we are able to construction loans that will match a positive possibility for our debtors. Contact us for extra details about how we calculate revenue.