Because the financial markets are constantly evolving I am always researching any changes with Fannie Mae and Freddic Mac; specifically those which might affect 1-4 family investment property financing. Fannie Mae has always been a strong conduit for this type of financing and I have always felt they were somewhat more investor friendly i.e., up to 10 financed properties, ability to utilize rental income on the subject property, and no requirement for 2 year landlord history experience. This being said, effective October 26, 2015 Freddie Mac issued changes which positively affected real estate investors.
Freddie Mac increased their number of allowed financed properties from four to six when financing an investment property or second home. This could impact investors in several ways. With Fannie Mae, and their policy on multiple financed properties, investors are allowed to purchase up to four financed single family homes with 20% down payment. Past four financed properties the down payment increases on single family homes to a 25% down payment for financed properties five through ten. Freddie Mac does not have this division, so an investor would be able to take advantage of the two additional financed properties at a 20% down payment. In addition, cash out for investments properties was capped with Fannie Mae at four financed properties with the exception of Delayed Financing. Now with the increase from Freddie Mac that limit would go to six financed properties.
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 rental income minus 25% for qualification, but a valid lease must be in place. Fannie Mae has never had the landlord history requirement, and in addition, if the property is vacant at the time of inspection, the fair market rent provided in the appraisal report on form 216, operating income statement may be used, minus the 25% for qualification.
I am pleased to see these changes coming from Freddie Mas as I feel they were long overdue.