Can You Afford to Own More Than 4 Rentals?

So, last year when Fannie and Freddie freaked out and imposed all the crazy new rules for conventional loans, the biggest slam to us investors was the “maximum of 4 properties financed” rule. Basically it said that the max number of properties we were allowed to have financed using conventional loans was 4 – and that included our primary residence.  Dumb!

Well, Fannie has eased that restriction but it’s still dumb.

They’ll “allow” us to finance 5-10 investment properties as long as we have a 720 credit score, rental income documented on our tax returns (no receipts or leases) and CASH reserves equal to 6 months PITI (total monthly payment) FOR EVERY RENTAL THAT WE OWN. What?

So, if I have a primary residence and 9 rentals and my PITI monthly payment on each rental is $1,200 then I have to have a minimum of $65,000 in the bank to qualify. Yeah, right. So, really they haven’t “eased the rule” they’ve just said, “OK, you gotta pay to play.”

Here’s the scoop straight from Fannie:

Multiple Mortgages to the Same Borrower
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.

Last Friday, when Fannie adjusted the allowance for the amount of financed properties owned from 4 to 10, other underwriting requirements on investment and second home borrowers were updated as well.  Reserve requirements vary depending on the number of financed properties owned (including primary residence):

1-4 financed properties owned:
•2 months of reserves on the subject property if it’s a second home.
•6 months reserves on subj. property if it’s an investment property plus 2 months reserves on each other second home or investment property.

5-10 financed properties owned:
•2 months of reserves on the subject property if it’s a second home.
•6 months of reserves on the subject property if it’s an investment property plus 6 months reserves on each other financed second home or investment property.

Other underwriting changes for investment properties include:
•70% LTV for purchase of 1-unit and 70% for 2-4 units.
•720 minimum low-mid credit score.
•No history of bankruptcy or foreclosure in the past 7 years.
•Rental income must be documented with two years tax returns.
•Borrowers required to sign form 4506 (which you can expect on ALL loans these days–including owner occupied).

So, there you have it. Can you AFFORD to own more than 4 investment properties?