Let me give you some examples of what I am talking about. There has always been a premium for a loan for an investment property. In the past it was anywhere from 1% to 1.5%. Now it is 1.75% up to 75% of the value of the property and 3% for a loan that
is over 75%. On a $300,000 loan the actual dollar charge was $3000 to $4500; now it is $5250 to $9000. This money is just to take an investor loan. There is more coming.
If your credit score is under 720 and you wish to go to 75% on the loan, for any loan that amortizes longer than 15 years, there is another charge. This charge applies to all borrowers on any property usage, principal residence,second homes or investor. At a 75% loan to value the charge goes from .25% for a borrower with credit scores from 720-739; 1.5% for 680-699 and 3% from 620 to 659. On a $300,000 loan the charges go from $750 to $9000. Nine Thousand Dollars!
Let's recap: As an investor with a 740 credit score buying a single family residence that will be rented with at least a 25% downpayment seeking a $300,000 loan the charge will be $5250. An investor in the same situation with a 680 credit score will have charges of
$9750. Any investor with a credit score of 659 or less will have to pay 4.75 points which totals $14,250 to get the loan. (how many of the borrowers with a 659 credit score would you count on to buy a
rental?)
We aren't finished yet. If you wish to borrow on a property of 2 to 4 units, owner occupied or investor, add another point (1%). In the example above the total charges would be $8250 to $17,250. This does not include any points paid to buy down an interest rate or closing costs. Do you really think this is helping lure people into buying investment real estate, or on the other hand keeping rents low?
Now, believe it or not if you have 4 mortgages including your personal residence you can't get a loan from Fannie or Freddie anyway. They will not make the 5th loan. One major lender will not make a loan to anyone who owns three properties in the same zip code even if those are owned free and clear.
I am just getting warmed up but the column needs to end. I will address in future columns other problems that have arisen that seem, at least to me, to be detering people from getting into real estate. In the meanwhile think about what I have written and see if you have any thoughts about the reasonableness of these rules. It just feels like the lyrics of an old song,"about pouring water on a drowning man"!