In 2009, Fannie Mae and Freddie Mac rolled back the mortgage rule that prevented real estate investors from financing more than 4 properties per borrower. At the time, investors were limited to 4 properties financed, which included their primary residence.
A few months later in 2009, Fannie Mae changed their mind and rolled back their mortgage rule that prevented real estate investors from financing more than 4 properties back to 10. Today, the maximum number of allowable, financed properties is 10. You wouldn’t know it, though — few banks actually offer the 5 – 10 loan program. The main reason is the big banks want to be able to deliver their loans to both Fannie Mae and Freddie Mac. Having Freddie Mac stop at four, many of the larger lending institutions chose to go the conservative route and limit their exposure only to four.
Fannie Mae has always been more aggressive in my opinion than Freddie Mac. After the knee-jerk reaction that both GSE’s took during the mortgage meltdown, Fannie Mae recognized that it only made sense to return to the original 10 limit. When they did relaunch the 5 – 10 multi loan program, they changed their program guidelines to be more restrictive, i.e. down payment requirements, credit score requirements and cash reserve requirements.
One of the things I’ve noticed over the years when investors grow their portfolio is sometimes they may pay cash for property at first, but eventually want their money out later. Fannie Mae recognized the need for this and on June 28, 2011, released a delayed financing option for those cash buyers that need their money out in a very short period time. If an investor had more than four properties and wanted to cash out 5 – 10, they would only be able to the utilized delayed financing program which is only good for the first six months after the original purchase.
Good News is October 26, 2015 Freddie Mac issued changes which positively affected real estate investors. Freddie Mac increased their number of allowed financed properties from 4 to 6 when financing an investment property or second home. Even today, many originators still are not aware of this change. This could impact investors in several ways. With Fannie Mae’s policy on multiple financed properties, investors were allowed to purchase up to four SFR’s at 20% down. With Freddie Mac’s new changes investors now can put 20% down on a SFR up to 6 loans. In addition, they can also do a cash out loans on properties 5 and 6 without any timing constraints. Another great advantage is borrowers with less than 720 FICO scores can also do an additional two loans as long as Freddie Mac’s underwriting engine (Loan Prospector) approves the loan.
The next major change with Freddie Mac was the removal of the two year landlord history experience requirement which affected the utilization of rental income. Now that this has been removed, borrowers will be able to utilize 75% of the gross rental income with a lease agreement or 75% of the average market rent provided on 1007 report of the Fannie Mae appraisal.
I am pleased to see these changes coming from Freddie Mas as I feel they were long overdue. I also heard a rumor last week that Fannie Mae may loosen their guidelines for the 5-10 properties finance program to allow for cash out loans up to 10. Just a rumor. I hear it may be released in June. Stay tuned.