Freddie Mac Guidelines: Mortgages on Properties with Resale Restrictions

What Are Resale Restrictions and Why Do They Matter

Resale restrictions limit who can buy a property or how much you can sell it for in the future. These restrictions typically fall into two categories: income-based and age-based.

Income-based restrictions mean you can only sell to buyers whose income falls below certain thresholds. These are common in affordable housing developments where the goal is keeping homes available to moderate-income families. Age-based restrictions require at least one occupant to be 55 or older, which you see in senior housing communities.

Say you're buying a condo in an affordable housing complex where future buyers must earn less than 80% of the area median income. That's an income-based resale restriction. Or you're purchasing in a 55+ community where one spouse must be at least 55 years old — that's an age-based restriction.

These restrictions affect your mortgage because they limit your future resale market. Fannie Mae recognizes this creates additional risk and has specific rules for these properties.

Which Loan Types Are Eligible

Only first lien conventional mortgages work for properties with resale restrictions. This means you need a standard purchase loan or refinance — no government loans like FHA or VA.

The property can be a single-family home, condo, or townhouse, but it must be your primary residence or a second home. Investment properties with resale restrictions don't qualify for Fannie Mae financing.

Your loan must also receive either automated approval through Fannie Mae's Desktop Underwriter system or go through manual underwriting. There's no middle ground here — the loan needs one of these two approval methods.

Loan Types That Are Automatically Ineligible

Several specialty loan programs are off the table for properties with any type of resale restriction. These include CHOICERenovation mortgages, construction-to-permanent loans, and GreenCHOICE mortgages.

If you're planning major renovations, you'll need to handle them separately from your mortgage. The restriction applies even if the renovation loan amount is small relative to the property value.

Construction-to-permanent loans are also ineligible. If you're building in a community with resale restrictions, you'll need separate construction financing and then a permanent mortgage once the home is complete.

Additional Restrictions for Income-Based Properties

Properties with income-based resale restrictions face even more limitations if those restrictions disappear when the property goes into foreclosure. This is common in affordable housing programs where the income limits only apply to voluntary sales.

In these cases, financed permanent buydown mortgages become ineligible. These are loans where the seller pays upfront to reduce your interest rate for the first few years.

Government mortgages like FHA and VA loans are also ineligible, along with Freddie Mac's Enhanced Relief Refinance program. If you currently have a government loan on a property with income-based restrictions, you can't use this streamlined refinance option.

Mortgages with capitalized balances are also off-limits. This includes loans where unpaid interest gets added to your principal balance, which can happen with certain payment modification programs.

Required Documentation and Evidence

Your lender needs documentation proving the resale restrictions exist and understanding exactly how they work. This typically means providing the recorded deed restrictions, homeowners association covenants, or affordable housing program documents.

The lender will review these documents to determine whether the restrictions are income-based, age-based, or both. They'll also check whether income-based restrictions terminate at foreclosure, which affects loan eligibility.

You'll need to provide standard mortgage documentation as well — income verification, asset statements, credit reports, and property appraisal. The resale restrictions don't change these basic requirements.

The appraisal becomes particularly important because the appraiser must consider how the restrictions affect property value. They'll look at comparable sales of both restricted and unrestricted properties to determine fair market value.

Why These Rules Exist

Fannie Mae's restrictions reflect the additional risks that come with resale limitations. Properties with income-based restrictions have a smaller pool of potential buyers, which can affect liquidity and resale value.

Age-based restrictions in 55+ communities also limit the buyer pool, though typically less severely than income restrictions. The mortgage market recognizes that demographic restrictions can affect property values and marketability.

The prohibition on certain loan types stems from complexity concerns. Renovation loans and construction financing already carry additional risks, and adding resale restrictions creates too many variables for Fannie Mae's comfort level.

Income-based restrictions that terminate at foreclosure create a different risk profile. If the property goes into foreclosure, it can be sold without income restrictions, potentially recovering more value. But this also means the affordable housing benefit disappears, which affects the program's social purpose.

Common Complications and Gotchas

One frequent issue is confusion about whether restrictions are truly income-based or age-based. Some communities have both types of restrictions, and the combination affects which loan programs are available.

Another complication arises when buyers don't realize their property has resale restrictions until they're deep into the mortgage process. Always check the deed and HOA documents early to avoid surprises.

Some affordable housing programs have restrictions that phase out over time. For example, income limits might apply for the first 10 years, then disappear. Your lender needs to understand these nuances to determine loan eligibility.

Properties in Community Land Trust arrangements follow different rules entirely and are covered under separate guidelines [[4502]]. Don't assume the same rules apply if your property involves a land trust structure.

Appraisal challenges can also slow down the process. Finding comparable sales for restricted properties can be difficult, especially in areas where both restricted and unrestricted properties exist. This can lead to appraisal delays or value disputes.

References

For the official guidelines, see 4406.1: Eligibility and underwriting requirements for Mortgages secured by properties subject to resale restrictions in the Fannie Mae Selling Guide.