Michaela Phillips, Synergy One Lending

Michaela Phillips, Synergy One Lending

If you’re a real estate investor or thinking about purchasing a second home while interest rates are historically low, it’s important to be aware of new guidelines recently set by Fannie Mae and the U.S. Treasury. Until this point, investors have been purchasing homes at the highest levels on record. The government-sponsored enterprise Fannie Mae has recently outlined new rules for investors and those seeking second homes that may make it more challenging to acquire new investment properties. Here, I share more about what to expect from the changes:

Details on Fannie Mae’s new guidelines

Effective April 1, 2021, Fannie Mae is restricting the acquisition of investment or second homes to just 7% of their portfolio (down from 15-20%). This stark decrease will have a significant impact on investors or those seeking second homes, as fewer conventional mortgages will be available for these types of properties. Rate increases are expected, and non-conforming lenders are already entering the market to provide options for those hoping to buy investment properties or refinance transactions.

In addition to conventional loans becoming scarcer, they’ll also be more challenging to qualify for. Fannie Mae’s new guidelines will tighten underwriting criteria for investment properties and second homes, which may hinder investors’ hopes. Interested borrowers will now need to apply through the Desktop Underwriter (DU) program and receive an Approved/Eligible notice to qualify. The loan will then be delivered as a DU loan. Although the eligibility matrix will be updated in April, borrowers must currently have a minimum credit score of 620 and a down payment of at least 15% to qualify through the DU program for single-unit investment properties.

The new guidelines will be implemented as a risk-mitigation policy for Fannie Mae. By tightening the qualification criteria and reducing the number of investment and second loans they’ll take on, this government-sponsored enterprise is shifting more risk to the lenders. In turn, lenders are likely to become more stringent about financing for investments and second homes.

Although changes are coming down the pike, this doesn’t mean that conventional mortgages are no longer available for investment properties.

By Michaela Phillips. Michaela entered the mortgage lending industry in 1994. As of 2021, she’s Senior Lender for Synergy One Lending. Contact Michaela at 303.443.6292 or visit michaelaphillips.com. NMLS: 312874.