Investment Mortgage Guy

The recent credit crunch has made financing investment property more challenging than ever before. Here is some history and suggestions to help you navigate through your mortgage options in today’s restrictive market.

For years, there was a variety of different mortgage products available to finance your investment properties. Fannie Mae and Freddie Mac, Portfolio Lenders, Alt A lenders and Sub-Prime loans flooded the market offering the real estate investor a myriad of choices for financing their investment property.

As mortgage default rates increased starting in late 2006, Wall Street investors who put their money into mortgage backed securities started to leave the market. By August of 2007, The only national financing remaining (though mortgage backed securities) was Fannie Mae and Freddie Mac. In September, the Government took control of Fannie Mae and Freddie Mac and will inject up to 200 billion to make sure they stay solvent though these turbulent times.

 Here is some history of Fannie Mae and Feddie Mac:

In 1997 and before, there was no limit on the number of properties you could have financed.

In 1998 Fannie Mae changed the limit to 10 financed properties with them and 10 properties with Freddie Mac. Mortgage loans outside of Fannie Mae and Freddie Mac such as portfolio mortgages or local banks did not affect your limits.

In 2003, the limit changed to a total of ten financed properties and finally in October of 2008, the limit was decreased to four financed properties including your primary residence.

With these huge restrictions upon the number of properties an investor can have financed, a person may wonder what to do.

Here are the best options I have found:

1) The are a few national portfolio lenders left who will still finance an investor with more than 4 financed properties. The rates are about 1% to 2% higher than Fannie Mae. They will require 25% down and a 740 credit score.

2) Local Banks do not care about the number of properties you have financed. They will require at least 25% down and typically have a 5 year balloon with a 20 year minimum amortization schedule. Local Banks are going to be very tough on proving income right now. Proving cash flow is going to be critical if you want to qualify.

3) If you are just looking for short-term financing, hard money lenders will always work. You will be typically looking at a rate of at least 12% and a minimum of 3 points. (Very Expensive)

How long will financing be this restrictive? It’s hard to say but most likely for a good year or two. For advice on your situation, feel free to contact me at 952-808-2820.

Rob Bonahoom

Mortgage Coach