Ever Evolving Changes with Freddie Mac and Fannie Mae

Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Steve: This is Steve Bighaus with Guaranteed Rate, host of the REI Classroom. Welcome everybody here. What we’re going to do is we’re going to discuss briefly some of the changes with Fannie Mae and Freddie Mac that have transpired over the last year.
Mike: This REI Classroom real estate lesson is sponsored by theinvestormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Steve: Some of the larger changes last year was Freddie Mac went ahead and opened up their number of financed properties from four to six. That was a pretty good move. Fannie Mae realigned their policy on multiple financed properties. As some of you may not be aware, Fannie Mae allows up to 10 financed properties. Their previous guideline on multiple financed properties they set the threshold at 1 to 4, 5 through 10.
Basically what happened is that 1 to 4 determined credit scores, down payment reserve types, and then when you went to 5 to 10 that changed a little bit. Now what they’ve done in that is they’ve moved the multiple financed guidelines from 1 to 6 and 7 through 10. Now, where that differs a little bit, and the big difference is when you move to properties 7 through 10 you’ve got to have a 720 credit score. That is huge.
Also, the reserve requirements changed. Fannie Mae did change their reserve requirements. They went to an aggregate reserve requirement. Previously before it was on properties 1 to 4 you had to have 6 months on a subject property and 2 months on each additional investment property or second home, and then on 5 to 10 it was 6 months on each investment property or secondary home. Now, primary residence was never included in that calculation.
Now what they’ve done is they went to an aggregated adjustment where they go 1 to 4 financed properties is 2% of the outstanding principal balance, properties 5 and 6 is 4%, and 7 through 10 it’s 6%. It’s a little bit of a difference. In some cases the reserve requirement’s going to go up a little bit. In some cases it’s going to be the same. In some cases it’s going to go down. It just all depends on what those balances are.
When it first came out everybody was concerned about it. I look at it. I mean the industry is going to continually change. I mean it’s just going to happen and we have to adjust to changes. We need to understand why they do some of the changes. There’s still the consensus that investor property is a little bit riskier. They want to make sure that as an investor that you do have adequate reserves, because let’s face it things happen on properties. Water heaters break. You have to replace a roof. So, the last thing in the world they want to do is have somebody buy an investment property that doesn’t have adequate cash to be able to take care of those items. That’s just another concern as far as failure. The last thing we want to do is we don’t want to have anybody fail on their investment property financing.
Another big thing too in that is with that multiple financed properties I talked earlier about the 1 to 4 and 5 through 10 on the previous one. Well, that determined it so far as down payment. So, 1 to 4 you could do 20% down on your first 4 financed properties and then 5 through 10 you had to put 25% down. That’s been done away with. You can do 1 to 10 single families, you can do 20% down, and then on 2 to 4 units that’s 25 so that was a pretty big change. It allows people to maximize their dollars a little bit more and maybe potentially buy some more properties.
Again, they’re positive changes. With any industry they will continue to evolve, so I’m sure like anything there’ll be more changes to come down the line. Whether they’re good or bad, we don’t know. We’ll just have to adapt to them as they come down. Good, I hope everybody enjoyed the topic. Take care. Bye, bye.
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