Fannie & Freddie Financing for Husband and Wife

Buying & Selling Real Estate
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Fannie & Freddie Financing for Husband and Wife

Randy Chang
Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes

Hi Guys,

Thanks in advance for your help.  I'm a new investor, and just recently ran into an issue with financing.  I've done a search in the forums, but can't seem to find the exact answer to my question below:

Background:  My wife and I jointly hold title to 4 properties (1 primary residence and 3 investment properties).  However, I'm the only person on the loan for all 4 of the properties.

Premise:  As I'm getting ready to acquire another investment property, my plan was to use my wife's name to qualify for the next set of properties, hoping that we can minimize the down payment required. (20% down instead of 25% down)

Question:  My lender has told me that because my wife is on title, she is also considered to have 4 financed properties; despite the fact that she is not on the loan on any of the 4 properties.   If we continue to take title jointly, then the both, combined, of us can only have 10 financed properties through Fannie and Freddie. Is there any truth to his statement or is he mis-informed?  

I was under the impression that it Fannie and Freddie only cares about the name on the loan, and how we take title should not affect how many loans we each have?  Ultimately, I would like to get 10 financed properties each.

Thanks Again

Randy

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
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Being in title with a secondary loan is a contingent liability as the note would be assumed by the married partner to protect the title interests, the assumption is that the property would be kept.

Keep in mind, banks, brokers, CUs or other originators may have loan policies that exceed secondary market requirements, Fannie Mae underwriting guidelines are "guidelines" as to the securitization of the loan, they are not rules that may not have further requirements.

The lender also has title insurance coverage on the loan, that title coverage can also be an issue with joint title coverage afforded only goes to the interests held.  

Originators may consider the worst case interpretation of guidelines to ensure they won't be "buying back" loans created. Conservative lenders, conservative originators.

Being under English Law or Napoleonic Law has no bearing on mortgage interests or on marital title interests until death of a spouse, you still hold joint interests. All state laws and federal guidelines allow for assumptions from an estate to a descendant, the line of inheritance isn't an issue for a lender. 

What you're looking for is a lender with more liberal interpretations of contingent liabilities from assumptions, bankruptcy of one borrower, divorce, death and suits.

Not only will one be qualifying for their own loan, but the big picture will always be relevant, according to the information a lender may have. Outstanding loan amounts will be considered and the ability to pay, if both are knocking down good incomes you may not have an issue, if one is relying on the income of a spouse, you're in a different boat. :)      

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  • Jeff V.
    Investor · Deridder, LA · Member since 2014 · 298 posts · 185 votes
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    I'm no expert but thats the same information that I've been reading all over the forums.  I believe Fannie or Freddie program has a maximum of 4 and the alternate will do up to 10.  I can't remember which has the higher...

    Either way your definitely limited in your investing by using Fannie Mae and Freddie Mac financing institutions.  The answer your looking for lies in Portfolio Lenders.  I live in a small town and have 2 portfolio lenders so I don't think they are hard to find if you look. 

    Here is a link to why a Portfolio Lender is your best bet:

    http://www.biggerpockets.com/renewsblog/2008/07/10...

    I don't think this answers your specific question, but may prove useful to avoid the situation all together and may hellp someone else in your situation.

    Thanks,

    Jeff V

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  • Randy Chang
    OP
    Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes
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    @Jeff V. 

     Thanks for your reply.  I will look into portfolio lenders at a backup option.  

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
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    My wife and I quit-claimed to each other our interest in the properties where only one of us is on the loan.  We then drew up a simple community property agreement and recorded it to protect us both.  Her loans don't show up on my credit, nor mine hers.  WA is a community property state, though.  Don't know if CA is, but I imagine it is.  No legal advice, just what I have done.  Good luck!

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  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
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    love your plan :) we are doing the same thing! Unfortusnlty we put both on our names on the first four ;(

    California is a community property state. So you should be good just having the property's. You should be fine having title only! Go talk to a different broker. I find everyone I interrupts the rules so different .

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
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    Being in title with a secondary loan is a contingent liability as the note would be assumed by the married partner to protect the title interests, the assumption is that the property would be kept.

    Keep in mind, banks, brokers, CUs or other originators may have loan policies that exceed secondary market requirements, Fannie Mae underwriting guidelines are "guidelines" as to the securitization of the loan, they are not rules that may not have further requirements.

    The lender also has title insurance coverage on the loan, that title coverage can also be an issue with joint title coverage afforded only goes to the interests held.  

    Originators may consider the worst case interpretation of guidelines to ensure they won't be "buying back" loans created. Conservative lenders, conservative originators.

    Being under English Law or Napoleonic Law has no bearing on mortgage interests or on marital title interests until death of a spouse, you still hold joint interests. All state laws and federal guidelines allow for assumptions from an estate to a descendant, the line of inheritance isn't an issue for a lender. 

    What you're looking for is a lender with more liberal interpretations of contingent liabilities from assumptions, bankruptcy of one borrower, divorce, death and suits.

    Not only will one be qualifying for their own loan, but the big picture will always be relevant, according to the information a lender may have. Outstanding loan amounts will be considered and the ability to pay, if both are knocking down good incomes you may not have an issue, if one is relying on the income of a spouse, you're in a different boat. :)      

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  • Randy Chang
    OP
    Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes
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    Thanks @Bill Gulley  for chiming in.

    I'm still confused on how title and vesting would adversely affect one's ability to get financing.  The whole reason that we made sure I'm the only person on the loan is to ensure that we can each get to our Fannie and Freddie limit of 10 financed properties each. 

    Anybody else able to chime in and provide a more definitive answer on what the Fannie and Freddie guidelines on what constitutes as having one of the ten financed property?

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  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
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    Hello Randy,

    It goes by the actual mortgage. When your credit is pulled it only shows your name on the mortgage so you just ran into someone who has an OVERLAY or just doesn't know how to structure your deal properly.

    Just remember that when you go from 5 - 10 you won't be able to do any cash out unless you've owned the home for less than 6 months. And this can only be done through delayed financing. Also you won't be able to qualify for any other Freddie loans (your wife will) but I think you anticipated that.

    If you have any more questions ask and you'll get a lot of great answers on here.

    I hope this helps and have a good one Sir.

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  • Randy Chang
    OP
    Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes
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    Thanks @Shaun Weekes .... Your answer seems to match what my understanding is.  

    Maybe it's time to talk to a new lender that does not have such an OVERLAY.  

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  • Randy Chang
    OP
    Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes
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    I saw this post by @ Jon Holdman in a separate post on this issue, but I'm not sure if it is in the same context.

    ------------------------------------------------------------------------------------------------

    Originally posted by @Jon Holdman:

    Provided both husband and wife can qualify separately, 10 conforming loans each is possible. But each must fully qualify on their own. Its fairly easy to get loans 1-4 (your residence counts as one, too), tougher for 5-10 because fewer banks will do those.

    Non-conforming loans (i.e., loans that don't conform to Fannie/Freddie rules) are available in essentially unlimited numbers, with the right lenders.

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  • Peter K.
    Lender · Milwaukee, WI · Member since 2014 · 119 posts · 62 votes
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    I'm a loan officer and haven't done the full research on this issue--but here are my thoughts.

    Fannie does allow 10 financed properties.  Some investors (servicing lenders) have an overlay that limits that to four.  Down payment will be 25% for investment properties with 2-4 units or 20% for single family with up to four financed properties.  With 5-10 financed properties the down payments go to 30% and 25%, respectively.  A decent size mortgage bank (I don't lend in California but my employer does have loan officers there) will have access to a Fannie Direct product with no overlays.  The interest rate may be a little higher than if you were subject to the servicing lender overlays, but you can still get a great rate on a conforming loan product.

    Just because a loan doesn't show on your credit report does not mean the underwriter won't know the property is financed.  The underwriter will be reviewing Schedule E on your joint tax return to calculate rental income and see that there is claimed interest for each property.

    What I'm not sure about is if a married individual can get under the cap by showing that some of the properties on Schedule E are titled and mortgaged solely in the name of their spouse.  You would need to work with a loan officer who understands investors and can present the scenario to their underwriter for an interpretation of the guidelines.

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  • O'brian R.
    Investor · Redondo Beach, CA · Member since 2013 · 147 posts · 50 votes
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    This is a very interesting thread and like you @Randy Chang I have the same strategy. I'm planning to finance up to 10 properties in my name alone and only after, my wife will pick up properties using financing under her name alone. The only difference is when I started, I was under the impression that my wife should not be on title with me when I pick up my properties. So my plan is to do all 10, finance them under my name and have only my name on title. So when the time comes, my wife will take over on financing and hopefully get past the lending limits with more ease since she won't be tied to the properties in any concrete way. 

    I'm currently in the process of financing my 2nd property and will be the only person under title again. This was my understanding at least, but I would like to know if this is not correct.  

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  • Randy Chang
    OP
    Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes
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    Thanks for chiming in @Peter K.   It seems like this is an overlay issue with this particular lender.  I will check out other options with different lenders and see what they say on this issue as well.

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  • Randy Chang
    OP
    Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes
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    @O'brian R.  (I'm sorry I can't get the link to work for your name).  I like your strategy to keep your wife off title in an attempt to maximize the Fannie and Freddie financing.  However, I would consider the following two points before making your decision on how to take title in future properties

    1) For estate planning purposes, if your wife's name is not on title, it could potentially cause issues in probate in the unlikely event you pass away.

    2) I'm not confident that the information my lender told me regarding what constitutes a "financed property" under Fannie and Freddie is correct.  Based on my understanding, as long as a person is not on the loan, being on the title itself should not affect his/her ability to obtain financing under Fannie and Freddie guidelines.

    Ultimately, I don't want you to make a haste decision regarding how to take title to a property and potentially jeopardize your estate planning based purely on information that could be incorrectly relayed to me.

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  • O'brian R.
    Investor · Redondo Beach, CA · Member since 2013 · 147 posts · 50 votes
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    @Randy Chang . Yea these @links don't always work. 

    Since CA is a community property state where any asset purchased during marriage is considered equally owned by each spouse, even if title is taken under my name only, I thought my wife would still be considered a 50% owner. So if I were to pass away, the property would go to her completely. 

    This sound right @Elizabeth Colegrove ? Think you were saying something similar.

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  • Randy Chang
    OP
    Investor · Irvine, CA · Member since 2014 · 31 posts · 6 votes
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    Hi Brian.... Your information regarding CA being a community property state is correct. However, you didn't pick up on the subtleties of what I was getting at earlier. You are correct in your belief that your wife will get the property if you pass away. HOWEVER when her name is not on title, there is no automatic "right of survivorship". In that situation, I believe your assets will have to go through probate, which is a complicated and expensive process that could be avoided if you took title strategically initially .
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  • O'brian R.
    Investor · Redondo Beach, CA · Member since 2013 · 147 posts · 50 votes
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    Ahh, I see what you mean. Good points Randy. 

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