New multi family requirements were just announced by Fannie Mae. This is going to make it harder to purchase a 1-4 family home. Because Fannie Mae guidelines are now stricter, everyone needs to know about it. I consider this a strong signal.
1-4 Family Homes
Let’s begin with the fact that a 1-4 family home is residential property. Because it’s residential property, you mortgage it the same way as a house if you live in it. While income producing, if it’s your primary residence then no problem. Additionally you get credit for the rent coming in.
Banks compute 75% of the monthly rent as additional qualifying income for an owner occupier. Let’s say you’re buying a 2 family home to live in and the rental income is $1,000. Here’s how it works out:
75% of $1,000 = $750 $500 = $100,000 mortgage $500 divided by $750 = $150,000 mortgage
Because banks give you credit for rental income, you can spend more and get a better property.
New Multi Family Requirements
Fannie Mae just put out a bulletin that changed the world for 1-4 family buyers. This takes effect in 2 weeks for all new residential multi family mortgage applications. Buyers must document a history of on time mortgage or rent payments for where they live right now. I believe it is going to be for 1 year but adjustments can still be made. Nothing is 100% certain until it goes into effect. What is certain is the requirement to prove you’ve been paying your mortgage or rent responsibly.
1st Time Home Buyers
I discussed this with Rick Casatelli of Weichert Financial. Rick feels that this applies to many 1st time home buyers. Rick explained that a good number live with family to save up for a down payment. As a result, they don’t pay rent which means they no longer qualify to buy a multi family home.
Rick feels that Fannie Mae is reacting to what they’ve experienced. He said it’s likely that buyers used rental income to stretch themselves too thin. Rick guessed that an unusually high foreclosure rate made Fannie react.
Rick is conservative. He doesn’t push people to their limit. I agree completely; this is the right way to go. It’s our job to get you a property that you can afford.
The Bottom Line
If you want to buy a multi family home as your first purchase, things have changed. While you might be living with your family to save, you no longer qualify to buy one. I know this is frustrating but understand why it’s being done.
Fannie Mae is watching the market carefully. No one wants another crash. Trouble started, Fannie saw it and is putting a lid on it. They are keeping the market healthy and solid. This is positive for everyone whether you are an owner, seller or buyer.
Questions? Text or call me at 201-741-8490.