Fannie Mae Announces Stricter Lending Limitations
Fannie Mae is making it harder for some investors to get approved for investment property and vacation home loans. While MartelTurnkey investors who work with our lenders don’t need to worry, it’s worth understanding what’s happening in the world of Fannie Mae-backed loans. In a recent letter that lenders received from Fannie Mae, requirements for investment property loans will include lending standards tightened from their current levels. Furthermore, as of April 1, Fannie Mae announced it is also cutting back on the number of these types of mortgages that it will purchase.
Reducing its Purchases
To begin with, Fannie Mae will be reducing the number of investment-backed loans it purchases to a level where these will comprise only seven percent of Fannie Mae’s overall portfolio. But perhaps more importantly, the company will have a particular focus on those lenders that have what is termed an “excessive delivery volume” of loans made for investment purposes, likely resulting in fewer conventional loans being granted to investors.
Tightening Underwriting Standards
While it’s certainly no time to panic, it’s also important to know Fannie Mae has also chosen to tighten its underwriting standards for investment property purchases. Because of this, you may have more difficulty qualifying for a loan today than in the past, when you might have gotten approved with no problem whatsoever. As a borrower, you will now be required to gain approval through the GSE Desktop Underwriter Program. Using this system, which will assess your eligibility and qualifications, means your lender will need for you to be given an Approve/Eligible recommendation and have the loan delivered to you as an official Desktop Underwriter (DU) loan to qualify.
Since Fannie Mae plans an update shortly to reflect its new loan qualification guidelines, be aware that if you are planning an imminent purchase of a turnkey rental property, a minimum down payment of 20% and a 680 credit score will be necessary to qualify for a DU loan.
Why Changes are Being Made
As to why these changes are being made now, it comes down to the relationship between Fannie Mae and the U.S. Treasury. With the new policies going into effect in early April, the Treasury Department wants to make sure lenders don’t take on unnecessary risks when granting such loans. For example, should a loan fail to be eligible for purchase by GSE, the original lender will then have to hold the loan and thus take on far more risk than the Treasury Department prefers in the current economic climate. Since both the federal government and the lenders themselves want to minimize risk, expect mortgage companies to be less lenient with investors regarding the approval of loans.
You Still Have Options
Before you decide there is no future for you as a real estate investor, remember that there are still numerous options available to you in regards to obtaining much-needed financing. To begin with, conventional loans are still a very viable option, even with stricter requirements. By ensuring your credit score is good and you have a sufficient down payment, you may still have no trouble getting these loans. Also, you may be able to arrange a loan through a family member or friend, or even try your hand at crowdfunding. Whatever the case may be, the money is still out there to be had for your real estate investments.
By remembering that other lending options are still available and doing all you can to meet the new Fannie Mae requirements, your real estate portfolio can continue to grow in the coming years. For more information or assistance getting financing for a loan, please contact us.