Fannie Mae announced on March 10 that they are limiting new loan secured by second homes or investment properties to 7% of the overall loans they purchase. What does this mean to borrowers seeking investment/2nd home mortgages? Turns out, it means A LOT. While Fannie Mae did not add any new “loan level pricing adjustments” (the fees borrowers pay for various perceived risk factors), mortgage lenders across the country applied their own adjustments to the interest rates for these loans. The reason they are doing this is to reduce the number of these loans being added to their portfolio because historically, these loans represent about 15% of the total amount of loans originated. That means that 50% of those loans will not be bought by Fannie or Freddie and will pose a considerable risk for lenders to keep on their books. Therefore, you have two choices as a lender 1) stop doing these loans altogether or 2) significantly increase the cost to be sure they do not exceed the 7% threshold. On average, we are seeing these rates are now roughly 1/2 % – 3/4 % higher than they were prior to this announcement. The impact for certain housing markets (such as Florida condos, which historically have a large percentage of second home/investment ownership), cannot be overstated. Bottom line…demand for second homes and investment properties will be greatly impacted by this new policy. Expect to see far more cash buyers for the situations and more than likely, far fewer bidding wars as new pricing adjustments raise rates and costs. Outside investors may eventually purchase more of these loans (which is Fannie Mae’s goal) but for the moment, prepared to pay substantially higher costs for that getaway condo or rental property.
Buying A Home Without Selling Your Existing Home First
If you are considering a move from a home that you currently own, you may feel like you are in a no-win situation. Traditionally, most people would need to sell their existing home to realize the equity that they have accumulated which would be used for the down payment on the new house. The second issue revolving around this is that very few sellers would agree to accept a contingency on the sale of your existing home as part of the contract because of the competitiveness of the market. But there are ways around this with a little ingenuity. The first challenge is that you would need some type of down payment (although oftentimes less than you think) and you may not have that money readily available. Remember that, in this situation, you would typically only need the money for a short period of time until you sell your existing home. Some recent examples of how our clients have come up with this short-term money is by taking out a loan on your 401(k), taking out a margin loan from a brokerage account or even gifts from family members. Oftentimes, you can structure a new loan with a first mortgage and a second mortgage (that can be paid off when you sell your house) to avoid having to pay private mortgage insurance. Alternatively, you can put down as little as 5% as a down payment which would require private mortgage insurance for a short period of time but is a way to make your move a reality. Give us a call, so we can help you explore how to make your next move!!
Long Term Interest Rate Locks
Good news for people purchasing a home they cannot close on for an extended period. Family Mortgage is now offering interest rate locks for 150-, 180-, or 210-day periods beginning in April. While these rates tend to be somewhat higher than the current market, we also offer along a free, interest rate float down within 30 days of closing if rates are better.
“Home is any four walls that enclose the right person.” – Helen Rowland