This morning Fannie Mae released updated guideline changes for conforming mortgages. This is a sign that we can continue to expect tightening in the area of loan approval guidelines which will make it more difficult for borrowers to qualify for loans in the future. I don’t think these changes will drastically impact most real estate & mortgage professionals core business but for those who tend work with investors and borrwers with less than favorable credit this is not good news.
Here is a summary of the most important changes in my opinion:
-Loan-to-value restrictions for cash-out: Fannie Mae is limiting cash-out refinances on owner-occupied homes to 85% (currently is 90%, FHA still allows borrowers to go to 95%).
-Loan-to-value restrictions for purchase and refinance of investment property: Fannie Mae is restricting maximum financing for purchase of an investment property to 75% (currently 90%).
-Investment property interest rates to increase: Fannie Mae is increasing the margin on investment property loans compared to owner-occupied interest rates. The margin gets increasingly larger with the loan-to-value but currently investment property purchases carry a rate that is approximately .375%-.625% higher and it looks like the new margins will be closer to .75%-1.50%.
-Maximum number of properties financed: Currently Fannie Mae will allow a borrower to own only 10 financed properties if they want to take out a new mortgage to buy a 2nd home or investment property. Moving forward this will be restricted to 4. If the borrower is buying a primary residence then this guideline doesn’t apply although many banks have overriding guidelines that supersede this change.
-Higher minimum credit scores: In the announcement Fannie Mae also said they would be raising the minimum credit scores required to qualify for various loan scenarios. There are too many to go into detail here but the bottom line is borrowers will have to have better credit in order to qualify for higher loan-to-value loans, investment property loans, & 2nd home loans than before.
Click this link to review the entire announcement. The timing in which these changes will take affect have yet to be determined but we know it will be no later than December 1, 2008 and probably even sooner depending on the lender.