Ask an RU: A Guide to Navigating Employer Relocation Loan Scenarios

As you work with your borrowers, you may face an instance of “hey, by the way, I’ve been offered a relocation program from my employer” – so what do you do next?! Get to know Employer Relocation Programs to help your borrowers effectively navigate the mortgage loan process. For the many loan scenarios you may encounter, it’s vital to stay on top of industry trends and keep your knowledge sharp!

Natalie Stokes, Regional Underwriter at Enact, covers all you’ll need to know about relocation loans and how to best work with this loan scenario when you come across them.

What is an employer relocation program?

Relocation programs are employer-sponsored benefit packages that help an employee move to a new location in a different city, town, or state. An employer can design different types of relocation programs, and an employee may be offered a relocation program to help with several types of moving expenses associated with a relocation.

Here are some examples of what financial assistance may be offered as part of their package:

• Closing costs
• Moving costs
• Temporary housing
• Storage fees
• Transportation

When your borrower needs to relocate, it’s key to help them minimize any additional stress and ensure that the mortgage loan process is as smooth as possible. Provide them with any additional information on relocation mortgages so they feel knowledgeable and ready for what’s next.

What are some requirements for employer relocation loan programs?

Familiarize yourself with some of our requirements of these loan programs so you and your borrower are ready for their relocation!

Employer contributions must consist of one or more of the following:

• A buydown or subsidy of the mortgage interest rate
• Payment of the borrowers’ closing costs (including loan discount points and origination fee) on the new and/or previous residence
• Funding of a below market interest rate or no interest bridge loan
• Payment of the difference between property tax and/or mortgage interest rate obligation on the employee’s previous residence and new primary residence
• Funds for moving expenses, temporary housing, house hunting expenses, loss on a sale of home, equity buyout of a current mortgage

Additionally, our guidelines indicate that a relocation loan must also have all the following attributes:

• Be an owner-occupied purchase money loan originated after an established employee relocation program to finance a primary residence at a new location
• Made pursuant to a relocation program administered by the corporate employer or its agent
• Made by the lender pursuant to a contract or agreement with the employer or its agent

For more information, refer to our underwriting guidelines here.

What else can be found in an employer relocation loan contract?

It is important to note that the employer may also include a payback clause that states if the employee leaves the company before a certain time, the employee may have to repay the company for the relocation costs. Sticking to the process and knowing the ins and outs of the contract will immensely help your borrower.

What should I know about relocation programs and GSE guidelines?

You’ll want to refer to how the GSEs handle this loan scenario to ensure your borrower gets the maximum use from their relocation package when purchasing a new home. Reading up on the most up to date guidelines from Freddie Mac and Fannie Mae will assist you as you navigate this type of loan process.

When a mortgage is made pursuant to an employee relocation program, the lender must obtain and retain the following documentation in addition to any other documentation required in the GSEs’ guidelines to ensure there are no issues when the loan is delivered to the investor.

• Complete documentation of the employee relocation program detailing the relocation benefits, including the employer’s contribution to Mortgage financing, such as Closing Costs, buydowns or other Mortgage financing costs, and payment of expenses incurred in selling the employee’s former residence, if applicable, as well as documentation evidencing that the Borrower is eligible for the employee relocation program; or
• The employer’s agreement with the Borrower detailing the terms of the employee relocation program and any related benefits, including the employer’s contribution to Mortgage financing, such as closing costs, buydowns or other Mortgage financing costs, and payment of expenses incurred in selling the employee’s former residence, if applicable.

For even more information on how the GSEs handle relocation loans, go to these resources:

• Freddie Mac – Section 4408.4 (special documentation requirements)
• Fannie Mae – B3-4.3-10 (anticipated sales proceeds)

More ways we can help

Your Enact MI team has got you covered. They can answer any of your important questions about relocation loans, other borrower scenarios, and provide you with underwriting best practices! Our Regional Underwriting Team is available to assist you Monday-Friday 8am to 8pm ET at 800-444-5664 option 2.

Be sure to make the most of your MI experience, too. Please explore our many underwriting resources and underwriting tips for more information. Because going the extra mile comes easy for us, we also offer a comprehensive suite of training resources to help boost your industry experience.

Source:  Natalie Stokes is a Regional Underwriter for Enact.

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