New Fannie Mae Investor Reserve Guidelines

I have been asked recently for some clarifications on the recent changes from Fannie Mae on Reserve Requirements when purchasing Investment Properties. As you may know, Fannie Mae has repeatedly changed its guidelines on this topic. Staying on top of this information is key as a real estate investor.

Per Fannie Mae’s February 6th Announcement:

1.  When the borrower will own one to four financed properties (including the subject property) the reserve requirements are:
* two months of reserves on the subject property if it is a second home,
* six months of reserves on the subject property if it is an investment property, and
* two months of reserves on each other financed second home or investment property.

2.  When the borrower will own five to ten financed properties (including the subject property) the reserve requirements are:
* two months of reserves on the subject property if it is a second home,
* six months of reserves on the subject property if it is an investment property, and
* six months of reserves on each other financed second home or investment property.

Note: The reserves calculation for a financed property is based on the monthly housing expense of the financed property. All reserve requirements are based on the new definition of reserves as defined in more detail in Fannie Mae Announcement 09-02.

So just as a numerical example, let’s say you want to finance an investment property costing $100,000 that will result in payments of $1,000 per month. Then your cash requirements will be:

1. 20% Down (typically): $20,000
2. 6 Months Reserve: $ 6,000
3. Closing costs: $ 2,500 (estimated).

In this example, then lender would be looking for $28,500 in your accounts to get approval.

You can click here for your copy of the announcement, or you can get it from:

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0902.pdf

Hopefully this helps clear things up for those of you confused on the new Fannie Mae Reserve guidelines for investors.

Fannie Mae Increases Investor Loan Cap!

To help support the needed financial recovery, Fannie Mae has announced that they are changing their recent investor cap on the total number of mortgages under the same borrower.  In the later part of 2008, Fannie Mae reduced the total number of mortgages that an investor can have from 10 down to 4!  This resulted in investors scrambling for higher-rate in-house programs and even higher rate private funds for investing.

Now with the issuance of Announcement 09-02 by Fannie Mae, the cap has been temporarily lifted back up to 10 properties.  While still sorting to the details, for properties #5 to 10, it looks like 75% LTV with a minimum of 720 credit score and above. The requirements apply to any investment property or second home loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.

You can read more details on this by clicking on the below link: http://www.gozoneonline.com/FannieMae0902.pdf

Remember that most banks, even with this rule, may still limit the total number of mortgages that you have with their institution.  However with this said, it greatly opens the doors back up for investors in the GO Zone trying to take advantage of the benefits before the end of this year.

Given this temporary reprieve from Fannie Mae, the timing of the remaining GO Zone benefits, and based on previous Fannie Mae changes over the past 9 months, I suggest that any serious investor who has been wanting to invest in the GO Zone do so now before the cap rules change back and while you can still find high-quality and affordable opportunities.