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: Good Morning everyone, Steve Bighaus, Security National Mortgage and host of the REI Classroom. Today we’re going to talk about some changes that have happened this year with Fannie Mae, which are positive and some of them a little more restrictive.
Mike: This REI Classroom real estate lesson is sponsored by uglyopportunities.com.
Steve: First, I’ll talk about, Fannie Mae has a policy regarding multiple financed properties. And what that is a division between one to four, five through ten. Now, we all know that Fannie Mae’s limit with financed properties is ten. So, in this guideline one to four in the past was that if you are buying a single family you could do 25% down. If it was a two to four unit, excuse me, single family was 20% and two to four unit was 25. And then, of course, if you were looking to cash out on a property, you couldn’t own any more than four financed properties. So again, that rule’s been in place for several years.
Now what they’ve done is they’ve changed that policy. They’ve moved it from one to six and then seven through ten. So, it means on your first six properties, single family you can do 20% down and then two to four unit 25% down. When you move into the five to ten world. Single family you’ve got to put 25% down and in the two to four unit you are going to put 30% down.
The biggest change that they’ve made this year was cash out. So, they no longer have a restriction on the number of financed properties. So, a lot of people thought when they changed that they were going to have that restriction one to six. Well, they don’t. They don’t have that anymore. But, how the multiple financed properties applies is if you are doing one to six, you can do 75% of the appraised value provided that you’ve been on title for six months. When you get a seven through ten, you’re still able to do the cash out, but the loan to value has been reduced by 5% so you can only do 75%. Now that’s a traditional cash out. You are on title for six months and you are able to do 70 or 75% of the appraised value determined on your number of financed properties.
The delayed financing is still there. That allows a bond that pays cash for a property to immediately turn around, receive up to their original purchase price back and I can utilize the appraised value. So, an example of that would be, if you bought a property for 50 and it appraised for 80, one, you can’t get 75%, but what you can do is you can get your 50 grand back that can roll into closing cost. And one to six, we are back to that multiple financed properties, would be 75, can’t exceed 75% or if you’re seven through ten 70%.
So, it’s still a viable option, just remind everybody that on this program with delayed financing, you have six months from the date of purchase to complete it. Okay? So that’s really important.
A big change that, I guess, that Fannie is looking at right now to the utilization of business assets. So, a lot of times clients will an LLC that they’ve set up and they funnel money through their LLC to buy these properties. Now what they are going to do is that, they’re going to do what they call a cash flow analysis on your bank statements.
Now, where this is going to get a little tricky, okay, you have to have tax returns. Previous year’s tax returns. So, I would say probably two years’ worth of tax returns that they can look at as far as the income and run the analysis on your bank statement to make sure that that’s not going to be detrimental to your business to pull those funds out.
Now, I understand a lot of people in that, if you go on rental properties that income from your rental property it’s going to be based off that. So, that’s a big change. Now, sometimes people will do a pass-through LLC. So, in other words, they run it on their schedule E, they set up an LLC for asset protection, but there aren’t any actual returns. So, the way we would look at that, we would just take your income off of your schedule E, run those figures like that, as if you were a sole proprietor and do the analysis off that.
So that’s a big change. Now, where a person is going to get hurt. Let’s say you recently formed an LLC and you wanted to pull the money from the LLC, can’t do it. Okay? You cannot utilize those funds. So, if you are going to sell a property or you are going to deposit some money, and the LLC doesn’t have any history, any tax returns to support it, dump it into your personal account. And that, utilize in there.
Okay, so that was it. So those were some big changes. They are positive changes. A little be tougher on the business asset, but again, it’s still a viable option, okay? Now we’ve just got an additional set of rules.
So, again, it’s Steven Bighaus for Security National Mortgage. If you’ve got any additional questions, you can always give me a call or pop me an email. Thank you very much, take care.
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