Home Financing

Real Estate Investor Financing


Real estate investors received good news about home financing when Fannie Mae announced a change. Previously, the maximum number of financed properties allowed was four per borrower.

As of March 1st 2009, the new limit is ten financed properties per borrower. The updated policy applies to real estate investor financing for 1 to 4 unit properties, with individual or joint ownership.

The opportunity for real estate investors to use more conventional finanicng should help expedite the recovery of the housing market, including the sale of foreclosure inventory that has been slowed by the typical need for real estate investors to pay cash.

The new policy removes a big obstacle to real estate investor financing, however, it does come with some conservative guidelines for qualifying. It seems that Fannie Mae is primarily looking for experienced investors with high quality credit, and substantial liquid assets.

Real estate investors must qualify with these financing requirements:

• Purchase of a one unit investment property requires a 25% minimum down payment.
• Buying a two to four unit property requires a minimum down payment of 30%.
• A real estate investor must have a minimum credit score of 720 in order to qualify.
• The investor cannot have any mortgage delinquencies within the last 12 months.
• There cannot be any history of bankruptcy or foreclosure within the last seven years.
• Rental income documentation with two years of tax returns showing all rental property.
• 6 months reserves of principle, interest, taxes, insurance is needed for each property.
• A limited cash out refinance is available with a maximum of 70% loan to value.

Investors must sign a form granting the mortgage lender permission to get 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 to validate accuracy.

This change is a positive move for the economy, even though strict guidelines narrow the field of real estate investors qualified for financing. The change will also leave many potential investors on the sideline, however, it may lead to the growth of real estate investor partnerships, groups, and clubs, which are designed to pool financial and credit resources to leverage their buying power.