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Frugal Homeowner®



Fannie Mae's Property Rules

QUESTION:  Our family has some money from an estate and we’d like to purchase several single-family homes as investments.  But a lender I talked to said that they couldn’t make the loan since we already have four properties financed through Fannie Mae.  I thought I read that this rule changed.  If so, why didn’t the lender know about it?  ---UW

ANSWER:  You are correct.  That “minimum of four Fannie Mae properties” rule was rescinded in February of 2009 and is now capped at ten properties per investor.  The rationale for this change was to allow investors to actively participate in the marketplace in order to reduce the glut of housing inventory and stimulate the housing economy.  The trouble is that many lenders find that the paperwork and documentation required to originate multiple investor mortgages is barely worth the time and effort. Finding a lender that understands the programs and actually makes the loans can prove to be a challenge.  And some lenders, as a type of policy, have decided not to offer these loans at all.

It begins with tight borrower guidelines and corresponding documentation.  In order to finance more than four Fannie Mae loans, investors must meet the following criteria:

  • Have a minimum credit score of 720
  • Make a 25 percent down payment on the property, or 30 percent for a duplex, tri-plex, or four-plex
  • Have no mortgage late payments within the last 12 months on any of the properties owned
  • No bankruptcies or foreclosures in the last seven years
  • Provide two years of tax returns itemizing rental income on all properties; and
  • Be able to document cash reserves of six months worth of principal, interest, taxes, and insurance on each property owned.  This latter requirement alone disqualifies many investor/borrowers.

In addition, the borrower must sign a 4506-T Form giving the lender the permission to compare the tax returns you submitted to the lender with the actual ones filed with the IRS.  This is done in an effort to reduce borrower fraud that ran rampant before and during the mortgage meltdown.  And should you want to refinance the properties in the future, loan-to-value ratio loans are capped at 70%. 

Besides tight qualifying guidelines and the mountain of paperwork, why would a lender not want to make up to ten Fannie Mae loans?  The answer boils down to two aspects:  risk and reward.  Lenders are cautious today in putting all of their loan eggs in one basket.  As the massive amount of residential foreclosures by investor/owners prove, borrowers who tend to over-leverage run the risk of bringing the lender down with them.  As for the reward aspect, traditional owner-occupied loans are underwritten in a more streamlined fashion using a W-2 and pay stub for documentation.  The lender has less muss, less fuss, for the same amount of financial reward…a closed loan that’s then sold into the secondary market.

In searching for a lender to make investor loans five through ten, I suggest you contact the lender(s) you used for the first three.  If you’ve paid the mortgages on time, you should have cemented a strong track record that may make you a stronger candidate for consideration.  Additionally, check online by googling “Fannie Mae broker” to find competitive lenders that write investor loans.  As always, first thoroughly check-out any lender prior to loan application.


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