Residential Real Estate Investors Now Limited By The New Mortgage Rules

Fannie 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.

There are several parts to the new guidelines. Part one involves number of properties owned by one person. Formerly, one person could own 10 properties. However, now, if a person applies for a mortgage loan, Fannie Mae will not grant the loan for second homes or investment properties if the applicant already has loans on more than 4 properties.

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.

Secondly, some of the guidelines do not have such a loophole. All investment property mortgages will be assessed with new loan-to-value based loan fees by Fannie Mae.

*3.75% loan fee - Loan-to-value 80.01-90.00%
*3.00% loan fee - Loan-to-value 75.01-80.00%
*1.75% loan fee - Loan -to-value less than 75%

These fees are mandatory and are in addition to any whatever other risk-based loan fees Fannie Mae may assess. Currently, those fees amount to a half-percent at minimum for real estate investors.

The government hasn’t released any information about possible relaxation of mortgage guidelines since their Fannie Mae/Freddie Mac takeover. If the guidelines loosen up, this would be helpful for real estate investors. If those who want to mortgage property can’t qualify for a loan, lower rates aren’t going to be a lot of help.

Consider incorporating your properties. Also, if you are considering trying to mortgage one or more investment properties, it may smart and and more cost effective for you to buy over the near term