A large part of the housing boom that took place several years was due to the purchase of second homes and investment homes. Investors account for 40% of the trillions of dollars of US mortgage debt. As the boom came to a halt, investors pulled away from purchasing since flipping the property for any profit at all in a down market became impossible. Many investors even walked away leaving a trail of foreclosures. In addition, second home buyers have found it difficult to tap the equity of their current home to meet the down payment requirements of a second home.
As the US Government tries everything to bring the housing market back, some regulations are changing in order to make purchasing somewhat easier. Fannie Mae has recently revised their investment property guidelines in an effort to open this particular market again and attract buyers.
In the past, there was a four home limit for investment properties with Fannie Mae. In order to attract more purchasing, Fannie Mae has increased the limit to ten properties. Some of the other new guidelines are:
-for more than four properties, the investor must have a credit score of 720 or higher.
-a borrower cannot have a history of bankruptcy or foreclosure for the past seven years.
-a second home requires a 25% down payment while an investment property requires a 30% down payment.
-there will reserve requirements depending on the property that is being purchased.
Will these changes work? For the real investor who has plenty of money to play with, it is probably good news. For the small investor or second home buyer,it actually looks like things have gotten a bit tighter from the past. As a Fannie Mae underwriter, I saw second homes being purchased in the past with 100% financing and very little reserve requirements. So although this may be better for some, things have definitely tightened up.
It is also vital for realtors and lenders working these deals for second homes to be honest. During the boom, many people bought second homes which carried the same interest rate as first homes and used equity from their first homes or equity in the home they were purchasing for the down payment. Sounds crazy, but that is truly what went on. Then they either rented or flipped the property. They were not true investors and when things got bad, they walked away and many left these houses for foreclosure. Investor loans carry a higher interest rate. A true investor portfolio will reflect this. Any mortgage underwriter can see the difference between the two types of purchasers. The problem in the past was that banking regulations allowed it to happen.
Considering today's housing market and these new changes, this opens up real opportunity for true investors to come back to the market. This may indeed help to lighten up the large inventory of available houses. On the other hand, if it drives housing prices up again, it will push out the first time home buyer and create the same mess again that they have been trying to clean up.