Your 10 golden tickets explained: Each tax-paying American citizen can qualify for up to 10 Fannie Mae loans. This loan program allows us to purchase rental properties with 15%-20% down payment plus closing cost with interest rates that are approximately .5% - .75% higher than a primary residence loan, with a fixed interest rate for 30 years. Most of the investors I’ve worked with have a mortgaged primary residence that accounts for one of these mortgages. That leaves 9 opportunities for investment properties. If you are married and your spouse is gainfully employed this could open another 10 loans to purchase homes anywhere in the USA.

WOW! That is the response I get from my Canadian, Japanese, and Australian investors when they hear that we have a program like this currently available. I say “currently available” because we are never guaranteed that this will always be available. Not too long ago you could purchase six properties with 20% down and the remaining four with a 25% down payment.

I highly suggest working with a mortgage officer who specializes in this type of loan. Furthermore, I would only work with a mortgage officer who owns rental properties personally. This is also a criterion for my tax advisor, home inspector, and anyone I obtain the services of when dealing with my rental portfolio. Why? I want to deal with people who have the same vision. I’ve created a mini-mastermind of professionals that have decades of experience and as a cumulative group, we can all help each other.

You should find a mortgage officer who uses a portion of your gross rent towards you DTI (Debt to Income Ratio). *Your Debt to Income ratio is the measure of your total expenses divided by your net income. Any loan officer can get in the first rental property but only a select few will use rental income when you purchase the next property. Maybe you have a massive income, and this does not apply but the average investor I meet needs this income to qualify for property 5 and above.

How do I qualify? The minimum credit score required is 620 & the ideal credit score: 760+

What kind of reserves are required per property? Late in 2019, Fannie changed their reserve guidelines to include the following tier:

2% of the aggregate unpaid principal balance if the borrower has 1-4 financed properties
4% of the aggregate unpaid principal balance if the borrower has 5-6 financed properties
6% of the aggregate unpaid principal balance if the borrower has 7-10 financed properties

How long does it take to close on a property? Currently 30-45 days

Are the interested rates fixed? Yes, up to 30 years.

What documentation will I need to provide to my lender? See below a checklist of items you will need:

Copy of your Driver’s License(s)
2 Most Recent Paystubs
2 Most Recent Bank Statements
Most recent retirement/investment statement covering the most recent 60 days
2 Most Recent Tax Returns
2 Most Recent W2’s/1099’s
2 Most Recent K-1’s, if applicable
- *If your ownership is greater than 24%, please also include copies of your 2 Most
Recent Business Returns, YTD P&L and Balance Sheet
- For all properties that you own, please provide the following:
Current mortgage statement
If you do not escrow for taxes/insurance or if you own free and clear,
please also provide:
Current insurance statement
Current Tax Bill
Copy of your current/most recent HOA receipt, if applicable
For any/all investment properties, please provide a copy of your current lease
agreements, if applicable
If you pay/receive child support/alimony, please provide a copy of your complete
divorce decree and/or child support agreement

Are interest rates the same as buying a primary residence or higher? No. you can expect to see a .5% - .75% bump in rate when purchasing an investment property.

15% down payment loans are available but require PMI (Principal Mortgage Insurance) This can be beneficial when purchasing investment properties over $200,000 as the PMI will fall off after a period of time. Seek an investment mortgage expert for further details.

Let’s break it down using the example of purchasing a fully renovated and tenanted $85,000 property. OK, you will need the 20% down payment = $17,000 and approximately $4,500 in closing cost. The cash out of hand is $21,500. This is why so many people are cashing out of the stock market, saving accounts, home equity, or converting their retirement accounts and buying homes out of state. The ability to leverage properties multiplies your ability to grow a sizable portfolio. With $100,000 you can now buy four properties and use the cashflow and personal investment to save for your next down payment.

How have things changed since COVID-19? Anyone who is self-employed will need to provide an updated profit and loose to make sure the business is still profitable especially if it’s not an essential business. A verbal VOE (Verification of Employment) 3 days before closing is required for anyone who employed. Interest rates have dropped slightly in the past 45 days. Currently, I am seeing rates in the low to mid 4% range on a 30-year loan.

Should I take a 15-year or 30-year mortgage? Personally, I would take a 50-year mortgage if it was available. Since I have a strategy of paying my homes off early using the cashflow as debt reduction the term is not important. However, if I ever need to pay a minimum payment the 30-year loan gives some flexibility.

The 2nd – 10th loan is much easier to obtain if you work with the same lender because they have all your documents, and they know your financial situation. When you are ready to grow the portfolio, they will simply need to update your information.

Happy investing my BiggerPockets friends!

James

James Wachob

3 Votes

4 Replies

Jump to Last Reply

You can buy real estate with as little as 15% down

Most Popular Reply