Fannie Mae is updating its guidelines by adding new restrictions and fees on investment properties. One of the largest changes is the 4-property limitation on properties owned by one investor.
With the new guidelines, applications will be denied if the applicant has a second home and investment properties totally more than 4 properties financed. Previously, the limitation had been 10 properties.
On the good side, Fannie Mae has made changes to the definition of a property owned. This has created a loophole for investors. If the property is held in the name of an LLC, then Fannie Mae will no longer declare it as a personally financed property, even if the corporation is in the name of the sole owner. In the past, this has been a typical practice of real estate investors for tax and liability purposes, but now it is going to be a necessity for these loans to be approved through underwriting. Give us a call at 913-642-3334 or visit our website at wantinsight.com for more information or if you have any questions.
Properties that have become a second home by default are not included in this new definition. In other words, there will not be a penalty when a home owner is unable to sell their primary residence, and are forced to rent this property to pay the mortgage. A couple of restrictions apply to this scenario, the property owner will not be able to use the rental income as income on a new application and will need to declare the entire monthly income as a loss if the equity in the home is less than 30%. If the equity exceeds 30%, and if six months of housing payments are in reserves for the rental home and new home purchase combined, then the owner will benefit from the use of 75 percent of the rental income for qualifications purposes.
There are loan fees that are applied to investment properties. If the loan-to-value (LTV) is 80.01-90 percent, there is a 3.75% fee; if the LTV is 75.01-80.00 percent, there is a 3.00% fee; and if the LTV is less than 75 percent, there is a 1.75% fee.
As unsettling as these changes for investment property owners may seem, if they qualify, then lower rates will be available to them. It is uncertain that the takeover of Fannie Mae and Freddie Mac will lead to a mortgage industry turnaround, but there is still a lot of upward movement needed to stimulate long-term economic growth. Give us a call at 913-642-3334 or email us at firstname.lastname@example.org for more information.
Michele "MAC" A. Cole