5601.2: General property eligibility requirements (11/19/18)

© Freddie Mac Single-Family Seller Servicer Guide

Freddie Mac expects the Seller to place as much emphasis on the adequacy of the property as collateral as it does on underwriting the Borrower's creditworthiness. The conclusion that a Mortgage is acceptable to Freddie Mac must be based on the determination that the Borrower is creditworthy (acceptable credit reputation and capacity) and the Mortgaged Premises is adequate collateral for the Mortgage transaction. The Seller is responsible for determining the eligibility of the property and the acceptability of the appraisal report.

(a) Residential requirements

Freddie Mac will purchase eligible Mortgages secured by residential properties in urban, suburban and rural market areas as long as the Mortgaged Premises is adequate collateral for the Mortgage transaction based on the value, condition and marketability of the property.

(i) The Mortgaged Premises

The Mortgaged Premises must:

Be primarily residential in nature based on the characteristics of the property
Be an attached, semi detached or detached dwelling unit(s) located on an individual lot, in a Planned Unit Development (PUD) or in a Condominium Project. See Chapter 5701 for special requirements for condominiums.
Be safe, sound and structurally secure
Be complete unless the requirements of Section 5601.2(b) are met
Represent the highest and best use of the property as improved (or as proposed per plans and specifications) in accordance with Section 5601.12(d)
Have an eligible zoning compliance in accordance with Section 5601.12(d)
Have legal access (ingress and egress) (see Section 5601.12(d))
Be suitable for year-round occupancy regardless of the location
Have utilities that meet community standards (see Section 5601.12(d))
Have mechanical systems that meet community standards
Have property insurance coverage that meets Freddie Mac's requirements and coverage for hazards specific to the location of the property
Not be subject to a pending legal proceeding for condemnation in whole or in part

(ii) Ineligible properties

Freddie Mac does not purchase Mortgages secured by:

Vacant land, undeveloped land or land development properties
Properties used primarily for agriculture or farming
Properties used primarily for commercial enterprises (including, but not limited to, bed and breakfasts, boarding houses, Condominium Hotels and units located in a PUD operating as a hotel or similar type of transient housing that includes hotel type services and characteristics)

See Section 5701.3 for a list of ineligible project types.

(b) Incomplete improvements

A Mortgage is only eligible for delivery to Freddie Mac prior to the completion of improvements when all of the following conditions are satisfied:

The appraiser has provided the 'as completed' value as the opinion of market value
The appraiser has provided a list of the incomplete items and the appraiser or a disinterested (but relevant) party has provided a cost to complete the incomplete items.

An example of a disinterested (but relevant) party is a contractor/painter who provides an estimate to paint interior walls. A relevant party includes, but is not limited to, a representative of a home improvement store or an independent contractor that performs the services needed to complete the improvements.

The incomplete items do not adversely affect the safety, soundness or structural integrity of the Mortgaged Premises
The Seller determines that the improvements cannot be completed for valid reasons; examples include, but are not limited to, inclement weather or temporary shortages of building materials.
The improvements will be satisfactorily completed no more than 180 days after the Note Date
The Mortgage is not secured by a Manufactured Home. (This requirement does not apply to incomplete energy conservation improvements.)
The cost to complete the incomplete items does not exceed 10% of the 'as completed' value of the Mortgaged Premises
The Seller has established a completion escrow account to complete the Mortgaged Premises and disbursements from that account are controlled by the Seller or the Servicer
The mortgage insurance and title insurance will not be impaired or adversely affected during and after the completion period
Upon completion of all improvements, the Seller will have the appraiser perform the final inspection of the property and complete a certification of completion. The completion report must document that the property has been completed and must be retained in the Mortgage file. (See Section 5601.11 for more information.)

Note: Third parties may perform certain incomplete improvement functions identified above as obligations or requirements of the Seller. However, the Seller remains responsible for compliance with these and all requirements of the Purchase Documents. (See Section 4201.10 for more details.)

(c) Properties with solar panels

Freddie Mac purchases Mortgages secured by properties with solar panels if the Mortgages meet the following property eligibility requirements:

(i) Properties with solar panels owned by the Borrower

If the Borrower owns the solar panels on the property, Sellers must ensure that the appraiser has recognized the existence of the solar panels, and considered the solar panels in the appraiser's opinion of the market value of the property. Additionally, the property must maintain access to electrical utilities consistent with community standards.

See Section 5601.12(o) for additional requirements related to appraisals of properties with energy-efficient improvements.

(ii) Properties with solar panels subject to a lease agreement, power purchase agreement (PPA) or similar type of agreement

If the property has solar panels subject to a lease agreement, PPA or similar type of agreement:
The solar panels must not be included in the appraised value of the property
The property must maintain access to electrical utilities consistent with community standards; and
The lease agreement, PPA or other similar agreement must provide that:
The owner of the solar panels agrees to not be a loss payee (or named insured) on the homeowners insurance policy covering the property; and
In the event of foreclosure, the Seller/Servicer may:
Terminate the lease agreement or PPA and require the owner of the equipment to remove the panels and supporting equipment
Become the beneficiary of the Borrower's lease agreement or PPA without incurring a transfer fee; or
Enter into a new lease agreement or PPA with the owner of the equipment under terms no less favorable than the existing lease agreement or PPA

See Section 5401.2(b)(v) for requirements related to solar panels subject to a lease agreement, PPA or similar type of agreement and the monthly debt payment-to-income ratio of the Borrower(s).

Any title insurance policy exceptions due to the existence of the lease agreement, PPA or similar type of agreement must comply with Section 4702.4.