With Fannie Mae relaxing their rules around financing real estate purchases, financing is becoming less of an obstacle for investors. As financing becomes easier, investors and buyers will become critical players in the real estate market as this market slowly makes a recovery. As the barriers are removed, opportunity, market timing and money combined will motivate more and more real estate sales.
A key factor in making property financing easier can be attributed to the number of properties a buyer is allowed to finance at one time. Originally, each borrower is only allowed to finance up to four properties. Now, the maximum is ten properties. This updated policy is applicable to joint ownership of single-family units, as well as duplexes and quadruple unit homes.
While financing barriers have been removed, qualifying guidelines have somewhat become more conservative. For the most part, Fannie Mae is seeking experienced and high-quality credit investors. For instance, an investor is required to:
- make a down payment of at least 25% in order to purchase a single-family unit,
- make a down payment of at least 30% in order to purchase a duplex or a quadruple property unity,
- have a credit score of at least 720 to qualify for financing,
- be clear and free of mortgage delinquencies (in the last year),
- show that he/she does not have a bankruptcy history or any foreclosures in the last seven years,
- provide documentation of rental income,
- provide verification of tax returns detailing each and every rental property going back two years,
- show that he/she has reserves for 6 months for principle, interest, taxes, insurance needed for every property, and
- show that a partial cash-out refinancing option is available (with up to 70% of the loan value)
This is a positive change for our fragile economy, despite the fact that strict rules have narrowed down the number of qualified investors, leaving potential investors out of the market. However, on the upside, the change can bring growth to stimulate investments, which will in turn leverage purchasing power.
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