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Fannie Mae Makes it Easier to Buy a Condo Investment Property – No More 50% Owner Occupied Ratios Required Sunday, July 1st, 2018

Fannie Mae has finally eased up their qualifying rules for buyers looking to purchase an investment property condo with conventional financing. Prior to June 23rd, if a complex had <50% owner occupied ratios, and a buyer was trying to purchase a condo as an investment property with conventional financing, the loan was automatically declined. Now as long as a buyer puts down 25% to purchase an investment property, 50% owner occupied ratios are no longer required to qualify for conventional financing. This is going to open up a lot more opportunities for investors to purchase condos in complexes that exist all around California that do not have 50% owner occupied ratios.

Tips How to Qualify to Purchase a Condo in a Complex with Less than 50% Owner Occupied Ratios

1. To qualify to purchase a condo in a complex that has <50% owner occupied ratios, the buyer needs to put down a minimum of 25%.

2. If a buyer does NOT put down 25%, Fannie Mae’s underwriting system will require a Full Review of the complex and the owner occupied ratios will be required.

3. Make sure the buyers loan application with the property address is ran through Fannie Mae’s conventional underwriting system (DU) and receives a “Limited Review Approval”. Then the owner occupied ratios are not required.

4. Important. Make sure you work with a lender that follows this new rule. There will be some lenders that will still require the owner occupied ratios regardless of down payment and even if Fannie Mae’s underwriting system does not require it. This is called a Lender Overlay.

5. Realtors, you probably already know lots of complexes in your market that don’t have 50% owner occupied ratios, which meant your buyers could not purchase investment properties there with conventional financing. A good idea is to reach out to these buyers now and let them know.

Fannie Mae made 2 additional changes that will help more investors and buyers purchase condos

1. Single-Entity Ownership has increased from 10% to 20% for projects with 21 units and more, which means a single investor can own up to 4 units in a 20 unit complex.

2. Project review requirements for 2-4 unit projects are now waived, so no more owner occupied ratio or budge requirements etc for a 3-4 unit property.

Buying an Investment Property is a Great Investment

Buying an investment property is one of the best financial investments you can make.

With annual rents continuing to increase on average 3% – 4% in many parts of California, and rental vacancy rates at 30-year lows in most parts of California, buying an investment property is a great source of additional income for the future.

As you can see below, just a 4% increase in annual rent can increase monthly rent of $1,500 up to $1,974 in just 8 years, an increase of $474. 

This is a 32% profit in rental income for an investment property owner in only 8 years.

Interest rates are not far of multi decade lows, so you can still get a low long term fixed rate on an investment property.

4 Loan Programs to Help you Purchase an Investment Property

Here are the best 4 mortgage programs that buyers can use to finance and purchase an investment property.

1. Tips for Buying an Investment Property with Conventional Financing

The majority of buyers and investors will use conventional financing to purchase an investment property.

Conventional financing allows you to obtain the lowest long term fixed rates, so their monthly return on rental income is highest.

The larger the down payment, the lower the rate with conventional financing.

The minimum down payment with conventional financing to purchase a single family residence or condo is 15%. You can finance up to a loan amount of $649,650 in San Diego.

The minimum down payment to purchase a 2 unit property is 20%, and 25% for a 4 unit.

A buyer is allowed to finance up to the following loan amounts for a 2-4 unit property.

  • You can finance up to a loan amount of $870,225 on a 2 unit property.
  • You can finance up to a loan amount of $1,051,875 on a 3 unit property.
  • You can finance up to a loan amount of $1,307,175 on a 4 unit property.

Please note, as listed above, when purchasing an investment property condo and putting down less than 25%, conventional financing will require 50% of the units to be owner occupied.  *When purchasing a condo in a complex as a primary residence, there are NO owner occupied ratio requirements.

Another rule to be careful with when using Conventional financing, gift funds are not allowed on investment properties.

2. FHA Buyers Can Buy a 3-4 Unit With Only 3.5% Down FHA Financing

Did you know the FHA allows you to purchase a 2-4 unit home with FHA financing and you only have to put down 3.5% to qualify?

FHA financing is for owner occupied financing, so you would live in one unit and rent out the other 1-3 units.

You can also use the rental income from the other 1-3 units to qualify for a loan.

This is a great way for homebuyers to start out as a real estate investor.

The FHA allows you to finance up to the following loan amounts for a 2-4 unit property.

  • You can finance up to a loan amount of $870,225 on a 2 unit property.
  • You can finance up to a loan amount of $1,051,875 on a 3 unit property.
  • You can finance up to a loan amount of $1,307,175 on a 4 unit property.

3. VA Buyers Can Buy a 3-4 unit with Zero Down VA Financing

Did you know the VA allows their military buyers to purchase a 2-4 unit home with zero down VA financing?

VA financing is for owner occupied financing, so the VA borrower would live in one unit and rent out the other 1-3 units.

You can also use the rental income from the other 1-3 units to qualify for a loan.

This is also a great way for VA homebuyers to start out as a real estate investor.

A VA homebuyer is allowed to finance up to the following loan amounts for a 2-4 unit property.

  • You can finance up to a loan amount of $870,225 on a 2 unit property.
  • You can finance up to a loan amount of $1,051,875  on a 3 unit property.
  • You can finance up to a loan amount of $1,307,175 on a 4 unit property.

4. New Bank Statement and Stated Financing  Programs Available for buyers

There are lots of new financing options available for buyers who cannot qualify for the 3 traditional financing options above.

We have different bank statement and stated programs for self employed and W2 buyers who cannot verify their income on their tax returns.

For example, if you need financing to purchase an investment property and rehab it, we can help you with the financing.

I also have access to several private money sources that will allow you to finance up to 90% of the purchase price, and then also give you the additional cash to rehab the property. The r are also some of the lowest in the industry.

Tips for Investment Property Buyers

It is a great time to purchase an investment property. With rates still near mutli decade lows, the cost of borrowing money to finance a home is still historically very low.

With rising rents and low rental vacancy rates, buying an investment property is a great long term investment.

Buying an investment property is also a great source of additional income for the future.

There are the tax benefits too of course, as the interest on the mortgage is tax deductible, and the property taxes and any repairs are also tax deductible.

If you have any questions about any of this information above, please feel free to contact me directly at 858-442-2686. I look forward to chatting soon!

P.S. If you would like to be updated faster on any important industry news or new loan programs that come out, please join my Facebook Page.