8 mortgage limit from Fannie MAE/MAC
Real Estate Investor · Memphis, TN · Member since 2008 · 86 posts · 1 vote
At my local REIA meeting, there was a sentiment from the more veteran players (particularly the mortgage brokers) that Fannie MAE/MAC will change mortgage allowance from 4 to 8 soon to help relief the number of foreclosures on the market.
Does anyone else have the same sentiment or has heard similar from their REIA?
I would think that the more veteran players have their properties in LLCs and use commercial loans for their property acquisitions. There is no limit on the number of commercial loans you can have.
Mike
Hello,
Can a commercial loan be used to purchase residential property? If so, how does that work? Is it one loan that contains multiple properties to allow it to qualify as a commercial loan?
Sorry so many questions, I'm just curious.
Maluno
I have been trying to learn about this as well.
Seems to be one of those things you basically just need to go out and beat the bushes to find..each persons credit/finances are different and available products vary by location.
Any opinions on wether its better to develop a business entity's credit for this purpose, or simply keep your personal credit good and when you get a few properties with equity approach your local institutions?
There are so many variables, it is difficult to break it down without specifics of a deal and/or understanding your long and short term strategies.
We used to deal with Commercial Blanket Loans, but then they stopped allowing a "Release Clause". The good thing about commercial is that there are no "Fannie/Freddie" issues to adhere to. It is a whole different world!
If you are just buying a few properties to get started, conventional lending might be a better place to get started. The best place might even be that good old fashion local bank in your hometown.
Before you do anything, I would talk with your tax adviser as to what is best for your personal situation. I am confident that if you need to get into an LLC they will advise you to do so. Once you start building up a portfolio, all of this LLC and commercial stuff will become much more important than it is on your first few deals.
I hope that they raise the limit to 8, as we work with many folks who just want to own 8-10 solid properties. We have been working hard to find lenders that allow more than 4, and we have found only 2 so far.
What is the best way to obtain conventional financing if higher credit scores and lower debt to income ratio's are required along with the inability to claim rents received from investment properties as income on the application? I have looked at the option of using private lending for the purchase then refinance into conventional lending. The problem that I have encountered is being able to get around the new guidelines such as 6 month seasoning, debt to income and rental income to show a decent profit at the time of a refinance.
It seems that if a commercial loan can be used for residential investment property, the personal credit requirements do not become an issue therefore allowing the property to qualify for the loan. This seems to be a much more productive route to take if qualifications for a commercial are not as tight as conventional.
Are commercial blanket loans the only way to go or are there any other commercial loan alternatives?
I will ask your question to one of our trusted network mortgage professionals and try to get his opinion for you on Monday.
I have not personally dealt with a commercial loan in over 12 months, and things have changed so much lately, I want to be careful not give you any wrong advice.
*** Where are all the mortgage brokers and bankers on here?
I am looking into this as well, but I would ask you, why is it you think you can not use rental income? Banks due reduce the gross income by 25%, but the balance 75% is available to report, with my understanding.
Will is correct, 75% of the rent should be able to be reported.
Hello Everyone,
Thanks for the info. It has been very helpful. I have a PDF of the document that gives an explanation about not being able to use rental income of a second home purchase. However, I haven’t figured out how to attach a document to this site so if you send me an email address, I will be more than happy to send this document to you.
Basically it seems to be a FHA guideline that has come into being due to people that may have been upside down on their home mortgage then decided to qualify for a new home at current market value. After the new home purchase was complete, the owner allowed the 1st home to go into foreclosure. So for an investor to qualify under this guideline, the borrower would have to prove that they can make the mortgage payment of both their primary residence and the investment property(s).
However, it seems that this rule has not taken full effect because the more I talk about this issue the more I hear about the ability to use 75% of the rental income.
Take Care!!
I have found that banks don't consider most LLCS as bankable. No income stream like employment gives. I've yet to find a bank that will loan to my LLC's and I have F&C properties a, but the LLC has no FICO or income stream they like.
Thank you Mr. Tumbarello,
You are correct, words do mean things and it seems that I may have used a few of them inappropriately in my last post. I apologize to you and anyone who has read this post.
If my interpretation is correct, the guideline that I have mentioned is directed toward people who are planning to vacate their primary residence in favor of another principal residence. If the initial principle residence becomes an income property (investment), rental income can not be combined with personal income to qualify for the new loan. The applicant must prove that they have sufficient income to support both properties.
The exception to this rule appears to be in the case of relocation or there is sufficient equity in the initial primary residence (vacated property used as rental) to protect against a default. Also, existing rentals that are confirmed by tax returns do not fall into this guideline.
So, if I buy a second home (investment property) and convert it into a rental, it seems that I may be subject to the same guideline as the person choosing move into a new home and rent out their existing home.
I have had lenders present this information to me and I am searching to find out how investors are working their way around the abundant obstacles and changes that confront us in today’s market
Here is a link to the HUD document that I have made mention of.
www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc
Have A Great Day!
Maluno
Its Not been fun. I am a lender and all the changes have caused good people to stay on side lines and not do anything. Hard money to expensive, banks not lending and now market suffers. Oh well its been time for renewal anyway.
If anyone needs advice on investor loans, at least its getting easier to answer them with less options. The renting of the primary home is for real. However if you relocate it works like the old way.
Barry Ratliff
Southwest Funding
You don't need to have an incorporated business entity either to obtain a commercial loan for a residential rental property.
Dave,
Fannie and Freddie both have the max 4 loan rule.
As far as LLC's go: Yes you can get money from local banks. The problem is you need to be very strong. Significant liquid assets, Income, Low LTV. etc...Most banks wont go past a 15 year amortization some will do a 20. Which is why conventional was the way to go and still is the way to go if you have three or less loans outstanding.
Maluno Kindred wrote: Can a commercial loan be used to purchase residential property?
No.
When board members make statements as Michael did above, it'd be helpful to cite the source.
In the case of Fannie's property limit, here's the link.
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0822.pdf
Here's the pertinent portion at page 7:
Fannie Mae is updating the guidelines to limit the number of financed properties to four when the mortgage being delivered to Fannie Mae is secured by a second home or investment property. This applies to mortgage loans that are manually underwritten and loan casefiles underwritten through DU.
Regarding ownership by an LLC or corporation, here is the text from Fannie's letter:
"In addition, Fannie Mae is clarifying that it does not consider the borrower to have either joint or total ownership in a property that is held in the name of a corporation, even if the borrower is the owner of the corporation. Such properties are not counted towards the four financed property limit."
The issue you are facing is that while Fannie says they will buy loans with more than 4 financed properties, few if any lenders are doing so. Fannie's letter 08-22 can be interpreted both ways (4 max or 10 max). Lenders are free to interpet the letter both ways, but with the current conservative underwriting standards, it appears that the majority of lenders are taking the most conservative interpretation of the updated guideline.
In the case of Freddie's property limit, here's the link.
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll042208.pdf
Here's the pertinent portion at page 2.
For second home Mortgages with Freddie Mac Settlement Dates on or after this date, a Borrower may not own more than four 1- to- 4-unit properties that are financed, including the subject property.
For Investment Property Mortgages with Freddie Mac Settlement Dates on or after this date, a Borrower who owns more than one financed Investment Property may not own more than four 1- to 4-unit properties that are financed, including the subject property.
Hey Caitlyn,
Thanks for posting those guidelines.
Am I reading your post correctly regarding commercial loans?
You can use commercial loans/bank loans/ in-house loans to purchase residential properties.
Michael Uelt... wrote: You can use commercial loans/bank loans/ in-house loans to purchase residential properties.
Commercial lenders lend only on commercial properties (5+ units), not residential properties. That's why they're called "commercial lenders." :-)
That is not correct. You can get commercial loans on SFHs and other buildings with less than 5 units if the property is being purchased by a LLC for commercial purposes (like rental property). I've got a bunch of them.
Mike
Mike OH-
Are these local banks you're dealing with? Any national name banks you're aware of? What do they use for qualifying? LLC income, your personal income, ficos or just the property? Would like to know more. Thanks.
One more thing--Are these only purchases or also cash out refis?
Been borrowing for purchase, purchase/rehab, from a commercial lender in a regional bank for years. SF, triplex, duplex--all types but not tied to LLC or other entity.
He wants strong taxes, high FICO, etc. but not in to cash out refis (is anybody anymore?)
15-20 yr. interest only for 6-12 months max,
good rates, .5 closing fee for bank. Will cross collateralize with properties owned for the 20% down required.
There are several commericial lenders in town that investors work with. Regions bank is one name but they've had problems lately with deposit withdrawal and are now asking about number of mortgages over 4
Number of mortgages is a non issue with commercial style lending. They do consider rental income but none of them really share their approval tricks.
MikeOH wrote: You can get commercial loans on SFHs and other buildings with less than 5 units if the property is being purchased by a LLC for commercial purposes (like rental property).
If owned by a corporation, you can get a residential loan for an unlimited number of rental properties. Agency (Fannie/Freddie) loans are, of course, cheaper than commercial loans.
I was making the distinction between "single family residence" (SFR), the definition of which is 1-4 units, and "commercial" which is 5+ units (in a single building), not the purpose for which the buildings are used (commercial, as in rentals).
Here's the link to the Agency guideline wherein it clearly states that if residential properties (defined as 1-4 units) are owned by a corporation, the corporation can have an unlimited number of loans.
Ann. 08-22: Miscellaneous Eligibility, Policy, and Pricing Updates (09/05/08)
Here's the pertinent portion:
"In addition, Fannie Mae is clarifying that it does not consider the borrower to have either joint or total ownership in a property that is held in the name of a corporation, even if the borrower is the owner of the corporation. Such properties are not counted towards the four financed property limit."
The challenge, of course, is to locate an Agency lender that will lend to a corporation. They're out there, but I don't know of one off the top of my head.
You can only get a Fannie Mae type "residential" loan for 1-4 unit buildings. You can get a commercial loan for any building, including a SFR or other property that could possibly get a residential loan. For lending purposes, you'll need a commercial loan for a 5+ unit apartment building, a strip center, and industrial, whatever.
For IRS depreciation, any residential property whether 1 unit or 100, gets 27.5 year depreciation. Any other sort of building, like a strip center, offices, industrial gets commercial depreciation. IIRC 36 years.
How's that for confusing?