Bad Information around 10% down

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Bad Information around 10% down

Jeff ChisumPro Member
Lender · All 50 States · Member since 2020 · 248 posts · 142 votes

So much bad and misinterpreted information around Fannie Mae 10% down Second Home Occupancy financing. I talk to about 100 people a month interested in this space. My biggest opportunity in these conversations is to educate people. So many don't realize this loan product can be used to buy an STR, multiple STR properties. If they do know about the product there is always something to correct in what they have been told by other loan officers. Fannie Mae loves there is this opportunity for the borrower to supplement their ability to repay the mortgage.

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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4y

@Jeff Chisum I recommend people directly read the Fannie Mae requirements. I believe Fannie Mae changed their policy on this at some point, so it could be people are working off old information. The big thing for people to understand is they must occupy it for a portion of the year, which means no long term rental. It also has to be self managed. 

✓Second Home Requirements
must be occupied by the borrower for some portion of the year
is restricted to one-unit dwellings
must be suitable for year-round occupancy
the borrower must have exclusive control over the property
must not be rental property or a timeshare arrangement1
cannot be subject to any agreements that give a management firm control over the occupancy of the property

https://selling-guide.fanniema...

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  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    4y

    @Jeff Chisum - Are you saying someone can use this loan more than once?

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y
    Originally posted by @Jeff Chisum:

    Yes!  You can have up to ten mortgages in your name.

     In addition to having 10 mortgages, you can always buy a primary house to live in.

    0Reply
  • Justin V.
    Rental Property Investor · Minneapolis, MN · Member since 2016 · 214 posts · 132 votes
    4y

    @John Underwood

    Can the 11th mortgage primary be a 2-4 unit as well which 1 unit will be owner occupied?

    1Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y

    Yes if it’s going to be a primary

    2Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y
    Originally posted by @Justin V.:

    @John Underwood

    Can the 11th mortgage primary be a 2-4 unit as well which 1 unit will be owner occupied?

     Yes. Anything 4 or less is considered residential. You or someone on mortgage must occupy one unit.

    1Reply
  • Troy Owen
    Rental Property Investor · Member since 2019 · 4 posts · 0 votes
    4y

    @Jeff Chisum

    Are you able to use this product for a second home in the same market as your primary, or is there a certain distance away you have to be?

    0Reply
  • Gerald Pitts
    Lender · Asheville NC · Member since 2016 · 469 posts · 317 votes
    4y
    Originally posted by @Troy Owen:

    @Jeff Chisum

    Are you able to use this product for a second home in the same market as your primary, or is there a certain distance away you have to be?

    I believe the minimum distance is 60 miles. 

    0Reply
  • Mike Petrosinelli
    Arlington, VA · Member since 2014 · 16 posts · 7 votes
    4y

    Isn't there a restriction on where you can buy? Since this is a second home/vacation rental, it wouldn't make since to have multiple properties in the same destination (ex. not owning 3 properties in broken bow), don't the 10 properties need to be spread out? 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    4y

    @Jeff Chisum I recommend people directly read the Fannie Mae requirements. I believe Fannie Mae changed their policy on this at some point, so it could be people are working off old information. The big thing for people to understand is they must occupy it for a portion of the year, which means no long term rental. It also has to be self managed. 

    ✓Second Home Requirements
    must be occupied by the borrower for some portion of the year
    is restricted to one-unit dwellings
    must be suitable for year-round occupancy
    the borrower must have exclusive control over the property
    must not be rental property or a timeshare arrangement1
    cannot be subject to any agreements that give a management firm control over the occupancy of the property

    https://selling-guide.fanniema...

    5Reply
  • Ryan MoyerBusiness Member
    Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
    4y
    Originally posted by @Jeff Chisum:

    So much bad and misinterpreted information around Fannie Mae 10% down Second Home Occupancy financing. I talk to about 100 people a month interested in this space. My biggest opportunity in these conversations is to educate people. So many don't realize this loan product can be used to buy an STR, multiple STR properties. If they do know about the product there is always something to correct in what they have been told by other loan officers.  Fannie Mae loves there is this opportunity for the borrower to supplement their ability to repay the mortgage.

    In the case of the latter why all the red tape about it not being in your home market, not having multiple of these loans in the same market, having to skirt the line of what kind of homeowner's insurance you can bring to closing (IE not landlord insurance you'd want on an STR), etc?

    I'm not disputing it I'm just saying it's silly from their perspective if they like us to earn money from the place to have a bunch of barriers in place for us earning money for the place we have to tip-toe around.

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    2Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y

    Yeah I get it but you have to go back to the number one purpose of the loan- second home occupancy.  They want people using these to occupy and that has to make sense when considering distance from any other real estate owned.  

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y

    It can be managed by a property management company as long as there is nothing in the agreement where you would lose to ability to occupy the property.  So you couldn’t have an agreement where they required you make the property available a certain period of time or you would be violating the agreement.  Yeah reading the policy is a good first step but understanding interpreting and vetting out with Fannie Mae is where I help people.

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Gerald Pitts:
    Originally posted by @Troy Owen:

    @Jeff Chisum

    Are you able to use this product for a second home in the same market as your primary, or is there a certain distance away you have to be?

    I believe the minimum distance is 60 miles. 

     It has to make sense to an underwriter.  We have done deals where someone lives in a typical subdivided neighborhood and there is a lake community 30 miles away where they want to buy a lake cabin to go enjoy at some point during the year.  You will hear 50 miles a lot of time but there is no minimum distance requirement with Fannie.

    3Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Michael Ablan:

    @Jeff Chisum - Are you saying someone can use this loan more than once?

    Yes sir.  UP to 10 mortgages

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @John Underwood:
    Originally posted by @Jeff Chisum:

    Yes!  You can have up to ten mortgages in your name.

     In addition to having 10 mortgages, you can always buy a primary house to live in.

     Yes sir!

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Justin V.:

    @John Underwood

    Can the 11th mortgage primary be a 2-4 unit as well which 1 unit will be owner occupied?

     Yes if it's going to be a primary

    1Reply
  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    4y

    @Jeff Chisum - So I can use the Fannie Mae 10% down on 10x second homes (technically)?

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    4y
    Originally posted by @Ryan Moyer:
    Originally posted by @Jeff Chisum:

    So much bad and misinterpreted information around Fannie Mae 10% down Second Home Occupancy financing. I talk to about 100 people a month interested in this space. My biggest opportunity in these conversations is to educate people. So many don't realize this loan product can be used to buy an STR, multiple STR properties. If they do know about the product there is always something to correct in what they have been told by other loan officers.  Fannie Mae loves there is this opportunity for the borrower to supplement their ability to repay the mortgage.

    In the case of the latter why all the red tape about it not being in your home market, not having multiple of these loans in the same market, having to skirt the line of what kind of homeowner's insurance you can bring to closing (IE not landlord insurance you'd want on an STR), etc?

    I'm not disputing it I'm just saying it's silly from their perspective if they like us to earn money from the place to have a bunch of barriers in place for us earning money for the place we have to tip-toe around.

     Because the rules are made by Fannie Mae and Freddie Mac. These are quasi government run organizations who's entire purpose is making owner occupied home ownership easier. They provide a means for mortgages to be sold on the secondary market as mortgage backed securities. The way the US government drives down mortgage rates is by the Fed buying mortgage backed securities. Currently the Fed has a policy of buying unlimited mortgage backed securities, meaning there is no risk for a lender to originate loans that conform to Fannie Mae or Freddie Mac underwriting standards. They set the rules intentionally to make it easier for owner occupied and to limit use by investors. 

    There are other options for investors with no limits that are free-market driven. Those are standard commercial loans. You will pay more for those type of loans (higher interest and down payment), because they are not backed/incentivized by the US government. 

    1Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    4y

    Self-employed investors seem to have a hard time getting these kinds of loans anyways IMO.

    1Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Mike Petrosinelli:

    Isn't there a restriction on where you can buy? Since this is a second home/vacation rental, it wouldn't make since to have multiple properties in the same destination (ex. not owning 3 properties in broken bow), don't the 10 properties need to be spread out? 

     Typically.  That's going to make the most sense to an underwriter as to why you would have multiple second homes.  There is a scenario where you own more than one in the same area.  I call it the bigger and better rule.  

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Joe S.:

    Self-employed investors seem to have a hard time getting these kinds of loans anyways IMO.

    Just depends. There are some 10% down options on bank statement loans for these type properties. There are also DSCR, investor cash flow loans but require 20%

    0Reply
  • Xavier Knight
    Investor · Ansonia, CT · Member since 2016 · 19 posts · 2 votes
    4y
    Originally posted by @Jeff Chisum:

    It can be managed by a property management company as long as there is nothing in the agreement where you would lose to ability to occupy the property.  So you couldn’t have an agreement where they required you make the property available a certain period of time or you would be violating the agreement.  Yeah reading the policy is a good first step but understanding interpreting and vetting out with Fannie Mae is where I help people.

     Can you do something like this on a Air BnB? this is interesting and the first time I'm hearing of this.

    0Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    4y
    Originally posted by @Jeff Chisum:
    Originally posted by @Joe S.:

    Self-employed investors seem to have a hard time getting these kinds of loans anyways IMO.

    Just depends. There are some 10% down options on bank statement loans for these type properties. There are also DSCR, investor cash flow loans but require 20%

     The bank statement loan program that somebody talked to me about had a much higher interest-rate. Maybe I didn’t talk to the right person. 🧐

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Joe S.:
    Originally posted by @Jeff Chisum:
    Originally posted by @Joe S.:

    Self-employed investors seem to have a hard time getting these kinds of loans anyways IMO.

    Just depends. There are some 10% down options on bank statement loans for these type properties. There are also DSCR, investor cash flow loans but require 20%

     The bank statement loan program that somebody talked to me about had a much higher interest-rate. Maybe I didn’t talk to the right person. 🧐

     Yeah rates on the investor Vm cash flow loans are going to be higher than second home occupancy through Fannie but they are not bad

    0Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    4y
    Originally posted by @Jeff Chisum:
    Originally posted by @Joe S.:
    Originally posted by @Jeff Chisum:
    Originally posted by @Joe S.:

    Self-employed investors seem to have a hard time getting these kinds of loans anyways IMO.

    Just depends. There are some 10% down options on bank statement loans for these type properties. There are also DSCR, investor cash flow loans but require 20%

     The bank statement loan program that somebody talked to me about had a much higher interest-rate. Maybe I didn’t talk to the right person. 🧐

     Yeah rates on the investor Vm cash flow loans are going to be higher than second home occupancy through Fannie but they are not bad

    Can you use an LLC and it not show up on your credit?

    0Reply
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