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Investing in real estate is easier todayInvesting in real estate is easier today because of recent Fannie Mae changes.  This is a huge shift that will really help a lot of people accumulate wealth.

Gone are the restrictions that made it impossible for so many to get a mortgage.  I always felt that this especially hurt small investors who were just starting out.  Previously comercial loans were required to buy an income producing investment property.  That’s no longer how it works today.

Fannie Mae removed the loan requirements that forced you to use commercial loans when you were investing in real estate.  This is a seismic change.

Commercial vs Residential Loans

Income producing purchases can be a pure investment or you can live in part and rent the rest out.  Let’s use a 2 family home as our example.  One buyer wants to rent out both apartments while another lives in 1 and rents the other.

Although it’s the same house at the same price, we have 2 different uses.  Here’s how it worked before Fannie Mae changed things:  The pure investment required a commercial loan while the owner occupied 2 family got a residential mortgage.

Previously commercial loans required the following:

  1.  Minimum 20% down payment
  2. Shorter terms – 5 to 20 years
  3. Higher interest rates
  4. Stronger credit scores
  5. Expensive fees – 1 point up front (1% of the mortgage amount) at least
  6. Prepayment penalties
  7. Larger financial reserves

While your residential mortgage allowed:

  1.  No or low down payments
  2. 30 year loan terms
  3. Credit scores as low as 620
  4. Much lower fees
  5. No prepayment penalty
  6. Reduced financial reserve requirements

The top reasons why buyers were unable to purchase investment properties:

  1. Down payment demands
  2. The up front 1 Point Fee (1% of the mortgage amount)
  3. Future refinancing costs with shorter term loans (typically 5-15 years)

As you can see investing in real estate is easier today by a lot. The top reasons which were insurmountable roadblocks before are now gone.

If you want to go over your options in real estate investing, I’m publishing another article on exactly this topic.  Check back soon because I might be finishing it very late tonight.  Also, I did just publish an article about the market last week.  If you haven’t read it, just click here.



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