Help for real estate investing has arrived with the news from Fannie Mae changing the number of financed properties allowed. Previously, the maximum was 4 properties with mortgage financing allowed per borrower, and as of March 1st 2009, the maximum can be up to 10 properties with mortgages. The updated policy applies to individual or joint ownership of one to four unit residential properties.
Real estate investors could play a key part in the housing recovery. The new opportunity to buy investment homes using conventional financing should help expedite the sale of foreclosure inventory that has been stymied by the requirement for investors to pay cash.
This new source of mortgage financing removes a large barrier to real estate investing, however, it does come with some conservative qualifying guidelines. Fannie Mae is primarily looking for experienced investors with high quality credit, and cash reserves.
Investing guideline requirements include the following:
o Purchase of a one unit investment property requires a 25% minimum down payment.
o Buying a two to four unit property requires a minimum down payment of 30%.
o A real estate investor must have a minimum credit score of 720 in order to qualify.
o The investor cannot have any mortgage delinquencies within the last 12 months.
o There cannot be any history of bankruptcy or foreclosure within the last seven years.
o Rental income documentation with two years of tax returns showing all rental property.
o 6 months reserves of principle, interest, taxes, insurance is needed for each property.
o A limited cash out refinance is available with a maximum of 70% loan to value.
Investors must complete and sign a 4506 form granting the mortgage lender permission to request copies of federal tax returns directly from the IRS. Prior to the loan closing, the lender must obtain the IRS copies of the tax returns or the transcript and validate the accuracy.
The policy change creates a positive move for the economy, although, stringent guidelines will narrow the field of qualified real estate investors, and leave many potential investors on the sideline. However, this situation may lead to a growth opportunity of real estate investing partnerships, groups, and clubs, which are designed to pool financial and credit resources to leverage the buying power of individual investors.
Potential investors with good credit and stable income could partner with others who have the necessary funds available. The details can be worked out to specify the level of involvement for each partner, distribution of money, and the process of handling the real estate transactions.
