Damn it. Make up your own mind already.
In January, the Federal Housing Finance Agency (the regulator and curator of F&F) basically asked Fannie Mae and Freddie Mac to focus on financing rentals of 1-4 homes. Whether it’s buying or refinancing. Investment property borrowers have become persona non grata.
The rental ban plan was the work of former FHFA director Mark Calabria, as well as former Treasury Secretary Steve Mnuchin (appointed by President Trump).
As a result, most lenders were forced to dramatically increase consumer prices – like a lot of points or a higher rate. Worse yet, some have completely removed rental real estate financing from the menu of loans sold to F&F.
Fast forward to September 14. FHFA interim director Sandra Thompson (appointed by President Biden) has suspended the rental ban plan. Now we come back to “bring it”.
You can now take another bite of the apple if you missed it before. Whether it’s buying in your head, lowering interest rates, or withdrawing money to expand your rental portfolio, now is the time.
For example, well-qualified borrowers with 25% down or 25% equity in the case of a refinance can still get a 30-year fixed rate of 3.375% with no points on a compliant loan of $ 548,250. Withdrawing money will add an additional 0.625 point.
Higher rates apply in Los Angeles and Orange counties for rental mortgages ranging from $ 548,251 to $ 822,375 (aka, a high balance loan).
Fannie and Freddie require at least 20% deposit for any purchase transaction.
But there are also alternatives to Fannie and Freddie.
What if you were the king or queen of cash flow? And you don’t care as much, or you don’t care at all about paying off the principal balance?
How about a 30 year variable rate mortgage with an upfront payment of interest only for the first five years at 2.875%?
You will need to put 30% deposit. The interest-only payment on $ 548,250 would be $ 1,314. This compares to a monthly payment of $ 2,424 for a fully amortized 30-year fixed rate at 3.375% from Fannie and Freddie. That’s a big, bad savings of $ 1,110 per month. It’s the cash flow.
Debt Service Coverage Ratio Funding, or DSCR loans, is particularly useful for borrowers who are struggling to meet M&F full income documentation standards for investment properties. The underwriting is largely focused on the rents of the property in question. Good credit and down payment standards apply (or equity in the case of refinancing).
As long as the monthly rent is at least a dollar more than the monthly payment for the house, including taxes and insurance, you should be eligible. For example, the rent should be $ 3,500 per month if the total payment for the house is $ 3,499.
Qualified borrowers can get these DSCR loans on rental property at rates as low as 3.625% for a fixed term of 30 years. You can also get a 30-year fixed rate with interest payments only for the first 10 years by paying an additional rate of around 0.125%. And you may be eligible for the interest rate only.
There is another investment financing instrument called no-ratio. This program does not even consider whether the rents are greater than the total payment for the house.
Fannie’s general rule is to limit investment home loans to a maximum of 10 funded properties. I know of a lender that allows borrowers to own up to 12 properties, with or without loans.
DSCR lenders generally have no limit on the number of properties owned or financed.
If you don’t already own at least one property, it will be difficult, if not impossible, to find a mortgage lender willing to provide you with a mortgage on investment property.
Although I am very concerned about a house price bubble, I do not see the demand for rental properties falling. And the rents shouldn’t go down either.
Mortgage rates are certainly going up. This week, Freddie Mac’s 30-year fixed rate broke above 3% for the first time since June 24. But the price that investment property managers pay for mortgages is still very cheap by historical standards.
If you plan to buy a rental, or more rentals than you already have, it is best to plan to buy and hold until the next market correction.
Hopefully Fannie and Freddie stick with the good old game plan of competitively pricing real estate investors.
Freddie Mac Rate News: The 30-year fixed rate averaged 3.01%, a worrying 13 basis points higher than last week. The 15-year fixed rate averaged 2.28%, 13 basis points higher than last week.
The Mortgage Bankers Association reported a 1.1% drop in mortgage application volume from the previous week.
At the end of the line : Assuming a borrower gets the 30-year average fixed rate on a compliant loan of $ 548,250, last year’s payment was $ 38 lower than this week’s payment of $ 2,314.
What I see: Locally, well-qualified borrowers can obtain the following fixed rate mortgages without points: 30-year FHA at 2.375%, 15-year conventional at 2.25%, 30-year conventional at 2.875%, conventional maximum 15-year balance ($ 548,251 to $ 822,375) at 2.5%, a conventional 30-year high balance at 3.125% and a fixed 30-year jumbo at 3.25%.
Eye-catcher loan of the week: A fixed rate over 30 years at 3.125% free of charge.