What To Do When Your Bank Won’t Finance More Than 4 Properties

Even Though Fannie Mae Allows It

Dan Green

In February 2009, Fannie Mae rescinded a rule that kept real estate investors from financing more than 4 properties at a time. The move increased the maximum properties financed limit to 10, giving investors a ticket to the nation’s REO and Foreclosure Party.

In its widely-celebrated official announcement, Fannie Mae said upping the financed-property limit could stabilize housing nationwide.

“Experienced investors play a key role in the housing recovery”, it noted.

3 months later, however, the 5-to-10 Properties Financed program is proving to be a bust. Despite Fannie Mae’s explicit endorsement of investor loans — mortgage lenders are choosing to keep the investor-friendly program off their books.

Well, most of them anyway.

Although the 5-to-10 Financed Properties program is approved by Fannie Maelenders, only a select crowd of mortgage lenders are making it available. This is a cause for consternation among the real estate investor set. Long-standing relationships don’t seem to count for much when a bank won’t do investor loans as a matter of policy.

And it’s silly, really. Fannie Mae is agreeing to buy the loans; the banks should be willing to do them.

Fannie Mae’s guidelines are pretty clear. The national group will purchase and guarantee investor mortgages where the applicant meets the following criteria:

  • Owns between 5-10 residential properties with financing attached
  • Makes a 25 percent downpayment on the property; 30 percent for 2-4 unit
  • Minimum credit score of 720
  • No mortgage lates within the last 12 months on any mortgage
  • No bankruptcies or foreclosures in the last 7 years
  • 2 years of tax returns showing rental income from all rental properties
  • 6 months of PITI reserves on each of the financed properties

And then, as a last step to reduce fraud, Fannie Mae’s 10-financed property program requires applicants to sign a 4506-T — a form giving lenders permission to verify the submitted-with-the-loan tax returns against the official, IRS-filed version of the same.

So, why don’t all bank participate in the 5-to-10 Properties Financed program?

The probable answer is that underwriting a 5-property-owning investor’s mortgage application is hard work. Versus a traditional homeowner that needs just a basic W-2 and paystub for an approval, a bona fide real estate investor submits complex tax returns with far more details to reconcile and verify.

The time to underwrite a non-owner-occupied mortgage application is multiples bigger than to underwrite a primary residence one. And because the bank gets paid the same amount by Fannie Mae on both loans, it only makes sense that the banks are sticking to what’s most profitable for them.

Less work, same profit. You know which way the banks will go on that one.

But, remember — there are banks participating Fannie Mae’s 5-10 Properties Financed program . If you have between 5 and 10 properties financed and want to purchase a new home, or refinance an existing one, let your first call be to your loan officer or bank. Ask them for help. Then, if that call comes up empty, call or email me directly.

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