Investors In Residential Real Estate Now Have New Limits Because Of New Mortgage Rules

In its last act as a semi-independent company, Fannie Mae altered mortgage guidelines for real estate investors last Friday. It was Fannie’s 22nd update this year.

The new guidelines first set a limit on the number of properties that can be owned by one person. Formerly, one person could own 10 properties. Now, mortgage requests for a loan for second homes or investment properties will be denied if the mortgagee already finances more than a total of 4 properties.

There is a loophole, however. Fannie Mae will not count properties against the 4-property limit if they are held in the name of a corporation. This holds even if the real estate investor is the sole owner of said corporation.

Therefore, it might prove beneficial for investors to restructure their properties into a corporation and avoid the 4 property limit. Now, this is a good idea to help gain mortgage approval even though some investors have taken this action for tax and liability reasons.

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.

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

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.

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.

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