One of the biggest hurdles many solvent investors have had these days is Fannie Mae’s (FNMA) limitation on the number of one- to four-unit financed properties.  This limit dropped to four properties over the last year or so, which has hamstrung many investors looking to add to their real estate portfolio.

However, according to FNMA Announcement 09-02, borrowers may now have up to ten financed properties without having to pay the higher rates of private or hard-money resources.  In the current lower price and low rate environment, this increased limit is an extremely beneficial change.

For those looking to purchase more properties, this new limit also comes with some new guidelines:

• Minimum credit score is 720
• The borrower(s) cannot have had a bankruptcy or foreclosure in the past seven years
• There can be no mortgage delinquencies (30-days or greater) within the past 12 months on any mortgage loan
• Maximum loan to value is 75% for purchase of a 1 unit second home or investment property
• Maximum loan to value is 70% for purchase of a 2-4 unit investment property
• Full income documentation is required including most recent two-year’s IRS 1040′s
• Refinances are allowed on a no cash-out basis and with a loan to value limit of 70%.

FNMA’s announcement also outlined new reserve requirements:

“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 reserves on the subject property if it is an investment property, and
• two months reserves on each other financed second home or investment property.

When the borrower will own five to ten financed properties (including the subject property) the reserve requirements are:

• two months reserves on the subject property if it is a second home
• six months reserves on the subject property if it is an investment property, and
• six months reserves on each other financed second home or investment property.“

Keep in mind, that a month’s reserve encompasses the total housing expense including principal and interest, property taxes, property insurance, HOA’s, Mello Roos, etc., not just the loan payment.

Now, six months reserves for up to ten properties might seem a little steep, but this is an important step in the continuing effort to rebuild a solid home-ownership base.  You want to buy a bunch of property?  Then you better be able to show that you can afford to do so. Sounds fair to me.

If you would like to discuss this topic further, please email me at Kevin@MyCWMtg.com