Freddie Mac Guidelines: Delivery Requirements for Income-Restricted Properties

What Are Income-Based Resale Restrictions

Income-based resale restrictions are legal agreements that limit who can buy a property in the future. These restrictions typically require future buyers to meet certain income thresholds, often targeting moderate or low-income households.

You'll find these restrictions most commonly in affordable housing developments, community land trust properties, and homes built with government subsidies or grants. The restrictions help keep housing affordable for future generations by preventing market-rate buyers from purchasing these properties.

Say you're buying a home in a community land trust development. The deed might specify that when you sell, the buyer must earn no more than 120% of the area median income. This restriction stays with the property regardless of who owns it.

Why Special Delivery Requirements Exist

Fannie Mae treats these mortgages differently because the resale restrictions affect the property's marketability and value. Standard automated underwriting systems and delivery processes aren't designed to handle the complexities these restrictions create.

The restrictions can impact the lender's ability to sell the loan on the secondary market. They also affect how the property gets appraised and what happens if foreclosure becomes necessary.

Fannie Mae needs additional documentation to understand exactly what restrictions apply and how they might affect the loan's performance over time. This is why Section 6302.37 exists with its special delivery requirements.

Common Types of Properties with These Restrictions

Community land trusts represent the most common example. In these arrangements, you buy the house but lease the land underneath it. The lease typically includes income restrictions for future buyers and limits on resale prices.

Affordable housing developments often carry deed restrictions that last 15 to 30 years or longer. These might require future buyers to meet income limits or give existing qualified buyers first right of refusal.

Some municipalities create inclusionary zoning programs that require developers to include affordable units in market-rate developments. These units often come with long-term resale restrictions.

Properties built with USDA Rural Development funds, state housing finance agency assistance, or local affordable housing trust fund money frequently carry these types of restrictions.

What Documents You'll Need

Your lender will need copies of all legal documents that create or describe the income-based restrictions. This includes deed restrictions, ground lease agreements, regulatory agreements, and any recorded covenants.

The purchase contract should clearly reference these restrictions. Your real estate agent and attorney should ensure the contract language acknowledges the restrictions and doesn't conflict with them.

You'll need documentation showing you qualify under the income restrictions if they apply to the initial purchase. This might include pay stubs, tax returns, and a letter from your employer confirming your income meets the program requirements.

The appraisal must address how the restrictions affect the property's value. The appraiser needs to find comparable sales of similarly restricted properties when possible.

How the Delivery Process Differs

Your lender cannot use standard automated delivery systems for these loans. Instead, they must follow the manual delivery procedures specified in Section 6302.37 [[6302.37]].

The lender must provide Fannie Mae with detailed documentation about the restrictions before loan delivery. This includes legal opinions about the restrictions' enforceability and their impact on the property's marketability.

Fannie Mae reviews each loan individually rather than processing it through automated systems. This manual review can add time to the overall loan process, so plan accordingly.

The lender may need to obtain special representations and warranties related to the income restrictions and their ongoing compliance requirements.

Potential Complications and Gotchas

Income verification becomes more complex when the restrictions apply to your initial purchase. You must prove you meet the income limits, but you also need sufficient income to qualify for the mortgage under standard debt-to-income ratios.

Some restrictions include resale price limits that can affect the appraisal. If the restricted resale price is significantly below market value, it might impact your loan-to-value ratio or require mortgage insurance.

Ground lease payments in community land trust arrangements count as part of your monthly housing payment for qualification purposes. Make sure your lender includes these payments in their debt-to-income calculations.

The restrictions might affect your ability to refinance later. Some programs require you to meet income limits again when refinancing, even if your income has increased since the original purchase.

Working with Your Lender

Choose a lender experienced with restricted properties. Not all lenders understand these requirements or want to handle the additional complexity and delivery requirements.

Discuss the restrictions upfront during your loan application. Don't wait until underwriting to mention that your property has income-based resale restrictions.

Ask your lender about timeline expectations. The special delivery requirements typically add 1-2 weeks to the loan process compared to standard mortgages.

Make sure your lender coordinates with the seller, real estate agents, and any housing counselors involved in the transaction. Everyone needs to understand how the restrictions affect the purchase process.

References

For the official guidelines, see 4406.11: Special delivery requirements for Mortgages secured by properties subject to income-based resale restrictions in the Fannie Mae Selling Guide.