BOULDER – In the latter part of 2015, Freddie Mac made some significant changes to the way they handle financing for investors. Because these changes were made relatively quietly, many investors are not currently aware that they may have just been given room for growth. The maximum number of financed properties that a borrower could be financially obligated for through Fannie Mae is ten, but once you reach four financed mortgages, you can no longer take cash out. That remains true for Fannie Mae, but new guidelines have been set forth by Freddie Mac that offer incredible advantages for property owners who wish to grow their investment portfolio.
The most exciting part of Freddie’s new guideline is that investors who own as many as six properties can take advantage of their recent equity gains and pull cash out to buy more properties! This gives seasoned investors new opportunities for buying more property. With the new guideline, you can refinance and take cash out up to 75% of the current value and reinvest, and with rates at a 3-year low, there is even more incentive now. This form of cash-out refinancing is an excellent strategy for investors for a couple of reasons:
• Cashing out on equity allows you to make improvements to the property that will, in turn, make the property more marketable.
• When you refinance your property, all of the costs are tax deductible. You can write off your points, your loan fees, legal fees, title fees, and any recording fees or mortgage registration taxes that may be imposed by your local government.
It’s important to remember that your loan is one component of your total financial picture, and this is extremely beneficial to investors who want to maximize equity across their entire portfolio. If a cash-out refinance sounds like something you might be interested in doing with your own investment property, here are a few requirements you need to know about:
• When speaking of investor refinance, Freddie Mac is referring to single-unit second homes or investment properties with one to four units.
• This is not merely a restructuring of your previous mortgage; a new loan application will be required.
• Your total cash-out amount will be expected to adhere to Freddie Mac’s maximum mortgage limits.
• The loan-to-value ratio requirements are more restrictive for investment properties than with primary residences.
There’s so much more to know about this process, and of course, there will always be subtle variances based upon your unique financial situation. The most exciting part of all of this is that investors have now been given access to the recent equity they have gained from our thriving real estate market, as well as the opportunity to take advantage of lower interest rates on additional investments.
If you would like to learn more about the pros and cons, or requirements of investment property refinancing, contact me at [email protected].
I look forward to discussing your options with you.
Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc., the 8th largest retail mortgage company in the country. Since entering the mortgage industry in 1994, she’s consistently been a top producer. Being a VP at Guaranteed Rate offers many advantages to her and her clients including unparalleled customer service, efficiency, and most importantly competitive rates.NMLS: 312874.