Freddie Mac Single-Family Seller/Servicer Guide §5401.1 — Monthly housing expense-to-income ratio (05/06/26)
Freddie Mac Guide §5401.1 (Monthly housing expense-to-income ratio). Gap-fill (verbatim, ID-diff).
Verbatim regulatory text
Verbatim provisions from Freddie Mac Single-Family Seller/Servicer Guide §5401.1 — Monthly housing expense-to-income ratio (05/06/26) — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
Freddie Mac Guide 5401.1
(05/06/26) This section contains requirements related to: ■ Establishing the monthly housing expense for Mortgages secured by Primary Residences ■ Establishing the monthly housing expense for Mortgages secured by second homes and Investment Properties ■ Establishing the monthly housing expense for Mortgages with a non-occupying Borrower ■ Rental payment documentation requirements ■ Housing expense-to-income ratio requirements based on underwriting method ■ Other Guide provisions related to the monthly housing expense-to-income ratio The housing expense-to-income ratio is determined by dividing the Borrower’s monthly housing expense by the Borrower’s stable monthly income and/or qualifying asset amount as described in Section 5307.1(b). The monthly housing expense must be documented in the Mortgage file and established as described below. (a) Establishing the monthly housing expense for Mortgages secured by Primary Residences ■ For Mortgages secured by a Primary Residence, the following expenses must be included in the calculation of the monthly housing expense-to-income ratio: ❑ Principal and interest payments on the Mortgage ❑ Property hazard insurance premiums ❑ Real estate taxes ■ New construction: When the actual real estate tax amount is not yet available, the real estate tax amount included in the monthly housing expense must be based on the value of the improvements and the land ■ Transfer of ownership: If the Mortgaged Premises is in a jurisdiction where transfer of ownership causes or results in a recalculation of the amount of real
Freddie Mac Guide 5401.1
401-2 estate tax, the monthly housing expense must include an estimate of the recalculated tax amount ■ Tax abatements: The real estate tax amount included in the monthly housing expense may be reduced or excluded when the Mortgage file contains all of the following: ❑ Evidence to support the reduced real estate tax amount ❑ Evidence of continuance for at least five years after the Note Date ❑ If the Borrower is not currently receiving the tax abatement, evidence the Borrower and/or the property is eligible for the reduced real estate tax amount ■ Tax exemptions: The real estate tax amount may be excluded from the monthly housing expense when the Mortgage file contains all of the following: ❑ Evidence to support the reduced real estate tax amount ❑ Evidence of continuance for at least five years after the Note Date. However, if the tax exemption is due to the Borrower’s age or disability, documentation verifying five years’ continuance is not required, provided the exemption does not have a predetermined expiration date within five years of the Note Date. ❑ If the Borrower is not currently receiving the tax exemption, evidence the Borrower and/or the property is eligible for the tax exemption ■ The following additional expenses must be included when applicable: ❑ Mortgage insurance premiums ❑ Flood insurance premiums only if coverage is required in accordance with Section 4703.3 ❑ Leasehold payments ❑ Special assessments with more than 10 monthly payments remaining ❑ Homeowners association dues (excluding unit utility charges) ❑ Maintenance Fees (excluding unit utility charges) ❑ Payments on secondary financing, including a Home Equity Line of Credit (HELOC). HELOC payments must be included when there is an outstanding balance on the account. In the absence of a monthly payment on the credit report for the HELOC,
Freddie Mac Guide 5401.1
401-3 and if there is no documentation in the Mortgage file indicating a monthly payment amount, 1.5% of the outstanding balance is considered the monthly payment amount. Refer to Section 4204.1 for when documentation of HELOC terms is required and to Section 5501.3 when HELOC proceeds are used for the transaction. ❑ For properties subject to resale restrictions, recurring monthly payments associated with the financial subsidy that was provided when the property was purchased by the Borrower. See Section 4406.3 for additional requirements related to such payments. (b) Establishing the monthly housing expense for Mortgages secured by second homes and Investment Properties For Mortgages secured by second homes and Investment Properties, the monthly housing expense is the sum of the monthly charges described above in Section 5401.1(a) for each Borrower’s Primary Residence. If the Borrower does not own but rents their principal domicile, the Borrower’s rental payment for that principal domicile must be included in the calculation of the monthly housing expense-to-income ratio. (c) Establishing the monthly housing expense for Mortgages with a non-occupying Borrower For Mortgages with a non-occupying Borrower, the monthly housing expense is the sum of the monthly charges described above in Section 5401.1(a) for each Borrower’s Primary Residence. If the Borrower does not own but rents their principal domicile, the Borrower’s rental payment for that principal domicile must be included in the calculation of the monthly housing expense-to-income ratio. (d) Rental payment documentation requirements When the Borrower rents their principal domicile, one of the following is required to verify the monthly rental payment amount: ■ Direct verification of rent from a management company ■ Direct verification of rent from an individual landlord supported by two months of canceled checks or other evidence of two months’ payments ■ A copy of the current, fully executed lease agreement supported by two months of canceled checks or other evidence of two months’ payments ■ Six months of canceled checks or bank statements supporting consistent payments in the amount used in qualifying
Freddie Mac Guide 5401.1
401-4 (e) Housing expense-to-income ratio requirements based on underwriting method (i) Mortgages underwritten with Loan Product Advisor® For Loan Product Advisor Mortgages, Loan Product Advisor calculates and assesses the Borrower’s qualifying ratios based on submitted data. For Accept Mortgages, Loan Product Advisor has determined that the Borrower’s qualifying ratios are acceptable. (ii) Manually Underwritten Mortgages (A) For all Manually Underwritten Mortgages For Manually Underwritten Mortgages, the Seller must evaluate the Borrower’s ability to pay the monthly housing expense and other obligations. As a guideline, the monthly housing expense-to-income ratio should not be greater than 28%. An exception can be made only with an offset documented in the Mortgage file. Examples of offsets that might support the use of higher monthly payment ratios are found in Section 5401.2(d). Generally, more flexibility is appropriate for the monthly housing expense-to-income ratio than for the monthly debt payment-to-income ratio. Less flexibility is appropriate for situations involving additional layers of risk (i.e., ARMs, a marginal credit reputation, minimal reserves or maximum financing). For any Manually Underwritten Mortgage for which either of the ratio guidelines is exceeded, the Seller must prepare and retain in the Mortgage file a written explanation justifying its underwriting decision. (B) Additional requirements for GreenCHOICE Mortgages® that are Manually Underwritten Mortgages For GreenCHOICE Mortgages that are Manually Underwritten Mortgages, higher qualifying ratios may be appropriate, considering the impact energy efficiency has on the Borrower’s utility charges (i.e., an energy-efficient property results in lower utility charges, allowing the homeowner to apply more income to housing expense). If one or both of the higher qualifying ratios are used for a GreenCHOICE Mortgage, the Seller must provide one of the following to the appraiser, as well as maintain a copy in the Mortgage file, to evidence that the property has a level of energy efficiency greater than that of a “standard” (i.e., non-energy-efficient) property:
Freddie Mac Guide 5401.1
401-5 ■ Home Energy Rating Systems (HERS) report completed by a certified Residential Energy Services Network (RESNET®) Home Energy Rater reflecting a HERS Index of 90 or below (http://www.resnet.us/directory/search) ■ Department of Energy (DOE) Home Energy Score Report completed by an independent Home Energy Score Certified AssessorTM reflecting a DOE Home Energy Score of six or greater (https://betterbuildingssolutioncenter.energy.gov/home-energy-score/home- energy-score-map) See Section 5601.4 for detailed appraisal requirements for properties with energy- efficient improvements. (f) Other Guide provisions related to the monthly housing expense-to-income ratio Refer to the following Guide sections for details on: Topic Guide section ARM qualifying rates Section 4401.2 Temporary subsidy buydown plans Section 4204.3(a) Special underwriting requirements for second home Mortgages Section 4201.12(b) Special underwriting requirements for Investment Property Mortgages Section 4201.13(b) Mortgages including a non-occupying Borrower Section 5103.1