If you have plans to purchase a second home or invest in the near future, hold on tight!

Fannie Mae is changing the eligibility of loans by second home and investment properties. As announced on March 10th in a Letter to Lenders, the number of Fannie Mae loans allowed for second homes has been reduced to 7% (roughly half of the usual percentage).

The ability to acquire second home and investment loans will be affected by tightened credit score requirements, increased down payments, and Desktop Underwriter approval.

Breakdown

To refresh, Fannie Mae is a federally-backed mortgage financing entity, whose purpose is to maintain affordable mortgages across the country. Because these loans are guaranteed by the government, Fannie Mae creates security for lenders and lowers the national average mortgage cost.

The Fannie Mae amendment was mandated by the Senior Preferred Stock Purchase Agreement (PSPA) and the Federal Housing Finance Agency (FHFA). As of April 1st, there is a 7% limit of acquisition of second home and investment properties. Second homes must be underwritten and approved with Desktop Underwriter — an automated system that determines loan eligibility based on approval requirements. Due to these limitations, credit score and down payment requirements will likely increase. Although an official statement has not yet been made, down payments are expected to increase by 15%, and credit requirements to 620.

Even as down payments increase, this change will further raise the costs for borrowers. Penny Mac (the major buyer of Fannie Mae loans) raised second home loan charges by 2.25%, beyond a 25% down payment. For those unable to fulfill a 25% down payment, the borrower will be charged 5% of the loan amount… that’s astronomical!

Whom Does This Affect the Most?

Is anyone exempt? The only exception, as stated in the announcement letter, is for “high LTV refinance loans that are manually underwritten in accordance with the Alternative Qualification Path and delivered with Special Feature Code 840.”

As the down payment requirement increases, regardless of credit score, the average Buyer may have a harder time acquiring a second home or investment loan. Although not all lenders are making immediate changes, I would expect widespread changes to be implemented very soon. If you are beginning the process of financing a second home, check in with your lender and mortgage broker regarding whether your rate is locked.

Marissa Sainz

Broker | Earth Advantage | OR

She/Her

Whether you want to live in a hip Pearl District condo or a unique east side bungalow I am here to help you find the perfect home. The Pearl District and the close in surrounding neighborhoods are exciting and evolving areas and where I focus my business. It is important in our changing real estate world, where location is so vital to home buyers, to work with a neighborhood expert. We all want to live near our local grocery store and within walking distance of our favorite coffee spot, restaurants and parks. I am here to guide buyers and sellers through the process every step of the way, if you are a first time home buyer searching for the perfect starter home or looking to move as your family and lifestyle change. Marissa earned a degree in finance with a concentration in real estate from The University of Texas at Austin. Before coming to residential real estate in Portland Marissa worked for both a national and local commercial real estate firm. Around town Marissa is involved with the Women in Insurance and Financial Services Portland chapter as well as the Women's Council of REALTORS®.

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