Bad Information around 10% down

37 Replies

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.

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.

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. 

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? 

@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...

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.

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.  

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.

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.

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. 

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.  

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%

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.

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. 🧐