Fannie Out with New Investor Rules

Here's another example of how issues in other parts of the country are effecting us in Tulsa.

Fannie Mae, August 1, 2008 adjusted their investor rules. On investment properties, Fannie now will require 30% equity on the existing property for the investor to claim up to 75% of the rental income as an offset to the mortgage payment in qualifying for a loan. Without the 30% equity, the rental income cannot be used as an offset AND the current and proposed mortgage payments must be used to qualify for the new loan. In addition, 6 months PITI for both properties must be escrowed. See RISMedia at this link for the story.

Here's why this is important. The rule has been that when qualifying for a mortgage an investor could count 75% of the income from the rental properties toward gross income. So a first time purchaser of investment property could apply with a rental agreement and receive credit on income for 75% of the payment. So if you had a rental of $800 per month, you are allowed to count $600 toward your monthly gross income. This is important because as you add debt, you also must have the ability to service that debt through income. What's significant is that in order to count the income now, an investor on a purchase will need a 30% down payment. Thus, on an $80,000 purchase, an investor would need $24,000 as a down payment to count 75% of the monthly rental towards gross income. If our investor has an already high debt to income ratio, he may need this additional income to qualify for the loan.

There's more to this new rule as well. Like what we call reserves. Investors are being expected now to have 6 months of reserves of PITI, and the lender is seeking to have them escrowed. The clear reason behind this is those other markets I mentioned. Because of the number of declining housing value communities (now being tracked by zip code by some lenders) investors and lenders are seeking to find ways to protect them selves from further default. History has shown, that the more "skin in the game" a purchaser has the less likely the investor will suffer a default.

You can always drop me a note if you have questions - you can e-mail me or though my web site at BrettBrough.com