Residential Real Estate Investors Now Limited By The New Mortgage Rules
Posted by: Guest Author / Category: MortgageFannie Mae was a semi-independent company that carried out its last act as such several weeks ago. This year Fannie Mae has carried out 22 updates.
The first part of the guideline change limits the number of properties owned by any one person. The former guidelines allowed for 10. Fannie Mae will now decline any mortgage application for a second home or investment property if the mortgage applicant already finances, or will finance, more than 4 properties in total.
This limit can be avoided if the properties have the loans in the name of a corporation, and the property owner is the single owner of the corporation. If the properties are held in such a manner, Fannie Mae won’t count them as part of limited properties.
Investors, therefore, should consider moving their properties into a corporate structure to avoid triggering Fannie Mae’s 4-property limit. Investors often take this step for liability and taxation reasons, but it’s now a good idea for mortgage approval reasons, too.
The second part of the guideline change cannot be so easily avoided. Fannie Mae is assessing new, loan-to-value based loan fees on all investment property mortgages.
Loan-to-value less than 75 percent : 1.75% loan fee Loan-to-value 75.01-80.00 percent : 3.00% loan fee Loan-to-value 80.01-90.00 percent : 3.75% loan fee
It is obligatory that these fees be paid along with any other fees incurred from other risk fees assessed by Fannie Mae. These fees currently are % at a minimum for investors.
Since its Fannie/Freddie takeover, government officials have not addressed whether mortgage guidelines will be rolled back to “a looser time”. If they are, it would be a big deal for real estate investors because, as many are finding out, low rates don’t matter much if you can’t qualify for them.
If you’re currently in the market for an investment property (or two), consider that it may be cheaper and simpler to purchase over the near-term versus the long-term. And consider moving your existing properties into a corporate structure first.
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