When you have a borrower that has taken rental properties a little more serious the average rental investor and has multiple rental properties, how many will FHLMC finance? Recent selling guide updates announced on March 16, 2017 (Bulletin 2017-2) provided some immediate clarification to this question.
By now we are all familiar with the change in 2016 when FHLMC raised their guidelines from a maximum number of four financed properties, up to six financed properties when the subject property is either a second home or investment property transaction. Note that there is no maximum when the subject is a primary residence. This was good news for those investors looking to grow their portfolio without looking for much more expensive private financing to purchase additional investment properties.
Which financed properties count and which do not?
But even with the new raised limits there was some confusion on how to properly determine which properties counted in the six. For instance, some underwriters would consider any property that you held title on that was financed, even if you did not sign on the mortgage. Examples of this would be properties financed by the spouse or in a business. In bulletin 2017-2 FHLMC clarified what properties do and do not count in this total. Here is a summary of the new clarification.
FHLMC 4201.15 & 4201.16
Each Borrower individually and all Borrowers collectively must not be obligated on (e.g., Notes, land contracts and/or any other debt or obligation) more than (6) six, 1-4 unit financed properties, including the subject property and the Borrower’s Primary Residence.
Examples of financed properties that do not have to be counted in this limitation include:
- Commercial real estate
- Multifamily (five or more units) real estate
- Timeshares
- Undeveloped land
Manufactured homes not titled as real property (chattel lien), unless the property is situated on the land that is titled as real property
Property titled in the name of the Borrower’s business provided that the Borrower, in his or her individual capacity, is not obligated on Notes, land contracts and/or any debt or obligation related to such property (New with Bulletin 2017-2)
Property titled in the name of a trust where the Borrower is a trustee, provided that the Borrower, in his or her individual capacity, is not obligated on Notes, land contracts and/or any debt or obligation related to such property (New with Bulletin 2017-2)
For 2017 with the predication of lower refinances and more of a focus on purchase business, this information should give you a few more leads to call on to see who is in the market for a new rental property!
8 Responses
Fannie and Freddie only count “Residential” financed properties and the max 6 properties only applies to NOO transactions. the max is unlimited for OO or 2nd Home Transactions..
Hi Laurie
Thanks for the comment, I would encourage you to look up the guidelines for FNMA/FHLMC on the number properties, which disagrees with your statement. I agree with you that they only count financed residential loans in the total, but for 2nd homes the maximum number of financed properties including the subject and the primary residence is 6 for FHLMC, you can find that guidance in FHLMC 4501.15 section B item 2. For FNMA the maximum number of financed properties including the subject or primary residence is 10 , you can find that guidance in FNMA B2-2-03.
Michael
Hi Michael,
I wonder how the “financed properties” are counted. In my situation, there are 15 properties (currently titled in an LLC). LLC is owned by my wife, her sister, and I. We are looking to rate-and-term refi 9 of those properties where I will be sole borrower and refi the remaining 6 with my wife as sole borrower. At the time of refi closing, we will transfer title for each of the 15 properties from LLC to my wife, her sister, and I jointly.
One bank says that financed properties will equal 15 since I am on the title (along with my wife and her sister) on 15 financed properties (though I am NOT the borrower on 6 of them).
However, the mortgage broker from another bank says financed properties will equal 9 for me (since I am obligated only on 9) even though I am on the title on 15.
Fannie Mae FNMA B2-2-03 guidelines does not quite provide clarity on this. Can you help?
Hi Sam
Thank you for the question here is my take on it and the link to the FNMA guidelines to help answer your question.
1) The FNMA guidelines state that if you are not personally obligated the mortgages in the LLC do not count in your toal number of financed properties
2) Based on what your stating the count would be nine properties, plus your primary residence and any other 1-4 family real estate you have personaly financed.
Hope that helps, check out the example bullet points on this guideline 🙂
FNMA Guidelines with examples https://www.fanniemae.com/content/guide/selling/b2/2/03.html
Michael Whitbeck
Director of Underwriting
Uberwriter
Hi Michael,
If a borrower has 18 properties all cross collateralized between 4 loans…their total financed property count would still be 18 correct? Even though they only have 4 mortgages?
thanks,
Hi Sereena
You are correct, is not the number of mortgage’s it is the number of properties financed that count. Keep in mind there are a few things you can do to still get that borrower financed. For example, if any of those properties in the 18 are commercial they do not count in the maximum number of financed properties.
Thanks
Michael
Hi Michael – If I’m on the title of a property, but not on the loan, would it count against my limit of 10 financed properties.
Hello
Yes if you are on title to a property that is financed (even by another party) that does count as a finannced property in FNMA/FHLMC defination.
Thanks!
Micahel