Multi-family Home Financing Change

As most readers know I’ve been lamenting the financing conditions for perfectly qualified real estate investors for quite some time.  Well, last week there was a significant change.  I have a client purchasing a Missouri fourplex.  During negotiations he was quoted a minimum 30% down payment.  But when it came time to lock in the rate after we arrived at suitable terms for all involved the 30% became only 25% required down payment.

Now, this sounds like a small movement.  But it’s actually very significant.  For instance, on this $260,000 property you are talking about being able to keep an additional $13,000 back for emergencies and/or future rental property acquisitions.

In this case, change is good.


Filed under Financing Options

4 responses to “Multi-family Home Financing Change

  1. I have not heard this change explained as good, just a lot of my friends complaining about it. I can understand this perspective and I think more people should hear about it.

  2. Pat

    If a fee is added to Govt loans, private loans will follow. They will follow the airlines example of extra fees for bags, meals and other services. Below is cut from link above.

    WASHINGTON (MarketWatch) – The White House may move ahead without congressional approval on proposals to reform the government-controlled housing giants Fannie Mae and Freddie Mac, including raising the fees charged for guaranteeing credit risk.

    According to people familiar with a long-expected report due out as early as Friday from the Treasury Department, the administration contends that a hike in fees charged by Fannie and Freddie would make it more expensive to buy government-backed mortgage securities and, as a result, drive investors to once again buy private-label residential mortgage-backed securities.

    “It appears the administration is exploring the idea of forcing Fannie and Freddie to raise their guarantee fees to make private-label RMBS a more viable option,”

  3. Pat

    More New Fee Details:

    Their new fees scheduled to start this spring, however, don’t appear likely to make financing a home any easier. In fact, some potential buyers who have high credit scores and hefty down payments may be surprised that even they are being targeted for higher “risk-based” fees.

    Consider these examples of how Fannie’s revised list of loan add-ons will affect borrowers. Say you want to buy a house that requires a $300,000 first mortgage. You have impressive FICO scores – above 800 – and cash for a down payment just under 25 percent.

    Purely on the basis of your credit score and loan-to-value (LTV) ratio, Fannie now plans to charge an extra quarter of a percentage point of the loan amount – $750 – to do the deal. During 2010, by contrast, your substantial down payment combined with your FICO score – signifying virtually no risk of default – would have cost you zero.

    Now take the same loan amount, but substitute a lower score and smaller down payment. Say your FICO score is 679, and you have down-payment money just under 20 percent, Fannie will soon begin hitting you for 2 3/4 percent in add-on fees – a staggering $8,250 extra solely attributable to your FICO and LTV. That’s up by $1,500 over what you would have been charged during 2010.

    But these fees are just the start of the multilayered, cumulative risk-based pricing system that both Fannie and Freddie employ. Every perceived risk factor in a loan transaction receives its own separate add-on fee, all of which gets totaled up for your final loan charges. Some fees are keyed to the type of real estate you want to finance. Condos, for example, are charged higher fees than free-standing houses – a flat three-quarters of 1 percent by Fannie when the down payment is less than 25 percent. Rental investment properties, manufactured homes, loans with interest-only payment features – all get separate fees that can mean significantly higher costs.

    That’s not all. Both Fannie and Freddie also tack on what they call adverse-market fees of one-quarter of 1 percent to all loans – the equivalent of cover charges at a nightclub – just to get you seated at the table. In the $300,000 example above, that’s a standard admission ticket of $750 – not what you’d consider chump change. All the fees can either be paid by you upfront as part of the transaction costs or financed with a higher interest rate on the mortgage itself.

  4. At the risk of sounding flippant, because I’m not, does this surprise anyone?

    Our government and it’s quasi-institutions are in serious financial peril. Inflation and taxing are the only two ways out since the cow is out of the barn on spending. Sure, we can cut back on spending. But not nearly enough to cover up the problem.

    The baby-boomers, you know the people who were going to change the world, have succeed. Gen X and Gen Y are going to get to subsidize and repay their “good” works. I’m not trying to be overly general here but that generation were like locust devouring everything in their wake.

    Higher fees are coming. Higher taxes are coming. Higher capital gains are coming. Republican or Democrat. Doesn’t matter. If you have a calculator you can figure out the math.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s