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If you’re a real estate investor, you may have found that many lenders won’t lend funds once you have financed 10 investment properties. This is due to Fannie Mae guideline limitations that all lenders who rely on Fannie Mae to purchase their mortgages have to follow. The good news is, not all lenders, including Amres, rely solely on Fannie Mae to purchase their mortgages.
Fannie Mae Investment Properties
Using Fannie Mae to finance investment properties can be a good, low-rate option to get started as a real estate investor. However, it may not be suitable for everyone. If you own 10, financed properties, whether the mortgage was sold to Fannie Mae or not, Fannie Mae won’t purchase any more investment property mortgages from your lender. Not only that, but once you reach 6 financed properties, your 7th financed purchase will require at least a 720 credit score.
The more properties you finance, according to Fannie Mae guidelines, the more you have to have in reserves, too. Excluding the subject property and your principal residence, for 1 to 4 financed properties, 2% of the aggregate unpaid principal balance on all of your financed properties is required in reserves in addition to any standard reserve requirements. For 5 to 6 properties, that number is 4% and for 7 to 10 properties, that number is 6%. So, if you have a collective, unpaid principal balance on 9 homes, totaling $1,000,000, you’ll need at least $60,000 in reserves in addition to the standard reserve requirements.
Another thing to note about Fannie Mae is that 1-4 unit homes are considered 1 property. So, theoretically, you could finance up to 40 units and still be operating within their guidelines.
Alternative Solution
Not all investment property mortgages have to be sold to Fannie Mae and, therefore, not all loans have to follow their guidelines and limitations, including the 10 property limit guideline. Once you leave the confines of Fannie Mae guidelines, you have a lot more flexibility with what you can do as an investor.
The DSCR Loan
The DSCR loan, an acronym for Debt Service Coverage Ratio loan allows investors to finance the purchase of an investment property with qualifying income based on the amount of income the property is expected to generate. So, for example, if a property is expected to generate $1000 per month and the monthly mortgage payment is expected to be $1000 per month, the property has a debt service coverage ratio of 1.00.
Unlike with Fannie Mae, there is no limit to the amount of homes you can have financed to get a DSCR loan. Also, for DSCR loans up to $1,000,000, only 6 months of reserves are required.
Perfect for Investors
In summary, the DSCR loan offers ideal lending flexibility for investors to finance their real estate purchases. While Fannie Mae is a good way to get started, they’re not good for investors who are ready to scale up their operations beyond the 10 property limit and take their investments to the next level. We, at Amres, understand the need for investors to have access to capital and with our DSCR loan product, we can help investors achieve their financial goals.