The first is from real estate investors, new or experienced. Who want to pick up properties they see as excellent deals. Last week an interesting call happened. An investor who bought and rented multiple single family homes in the early ’90′s then sold them all for nice profits at the beginning of this decade, called. He noticed that some of the same properties that he owned personally before were now on the market for the same price as he paid for them in 1991. And, he wants back in the game.
The flip side of that is another frequent call I am receiving these days. With the economy sluggish, a lot of people are feeling a financial pinch. Okay, squeeze. And I mean a LOT of people, not just related to the real estate industries. So, they are calling asking about debt consolidation or cash-out refinances. Many folks just need to get a hold on the credit card debt that is sapping their living expenses and strangling their monthly budget. So, pulling equity out of their homes is a good solution.
Lending Changes Affecting Investors and Homeowners
Fannie Mae recently proposed a few changes that will affect both real estate investors and homeowners who want to pull equity out of their homes and consolidate debt.
These new guides might have slipped under the radar for some with all of the news focussed on the government action with FNMA/FHLMC, but they are big changes.
- 1-2 unit investment property going form 90% LTV to 85% LTV. So, investors need 15% down payment.
- Cash-out refi on primary res. going from 90% LTV to 85%.
- Pricing Adjustments on investment property are increasing.
The old adjustments for purchasing investment property were (more on that in a moment):
< 70 -1.500
70 – 75 -1.500
75 – 80 -2.000
80.01 – 85 -2.500
The New Adjustments are:
< 70 -1.750
70 – 75 -1.750
75 – 80 -3.000
80.01 – 85 -3.750
Confusing. So let me clarify. The “adjustments” refer to required discount points that we must charge to get the loan. On investment property, the less down payment the borrower brings, the higher the discound points charged.
Only, most lenders don’t charge the points up front at closing. We roll them into the rate, and offer a higher interest rate, or premium rate, without the borrower bringing the extra fees to the closing table. Most times, that works best, so long as cash-flow still works on the property being purchased for investment.
Properties around Atlanta are plentiful that are good deals, and will cash-flow well, even with the increased loan pricing adjustments. If you are thinking of buying an invetment property, I will be happy to review the cash flow analysis on the property with you.
And, if you are interested in a cash-out refinance, remember that the changes in loan to value being capped at 85% of your home’s value applies only to conforming loans. You can still go to 95% LTV with an FHA loan. So if you want cash out of your home, let’s explore an FHA loan first. It is likely the better deal.