New Mortgage Rules and Real Estate Investing

New Mortgage Rules and Real Estate Investing

Over at foxbusiness.com this week is an article about real estate investing and focused on new or wannabe investors. The timing is all about a recent Bankrate.com survey that says a whopping 76% of consumers are currently not wanting to invest in equities. New interest in real estate is high because prices are still low and there’s been a lot of news about an improving real estate market and rising rents.
Some new investors, and even some existing rental property owners may find that it’s more difficult to get financing with the new mortgage rules in effect since January 1st. Credit requirements have tightened. Instead of just looking at the equity stake of the owner now, some lenders are looking at the number of leveraged properties owned by an investor. It’s more difficult to borrow in almost every situation than it was last year.
If you want to invest in rental properties in today’s financial climate, here are some things you will need to know:
• The new rules were enacted by the Consumer Financial Protection Bureau (CFPB) primarily to protect consumers from lender and mortgage services abuses.
• However, some of the new rules are specifically focused on making sure that the borrower can continue to make payments and isn’t taking on too much debt.
• The rules define a qualified mortgage as a mortgage up to 30 years, and a borrower’s maximum debt-to-equity ratio cannot exceed 43%.
• There can be no negative amortization or interest-only payment options.
• FHA maximum loan amounts have been reduced, in some areas dramatically. An example is in Florida, where maximum loan amounts have dropped from $417,000 to $285,000 for a jumbo loan.
• If you own multiple properties and want to use their equity to buy another one, you may be turned down, no matter how great your credit score. This is true even if you have substantial net worth and a low debt-to-income ratio.
• Lenders are setting arbitrary thresholds for number of mortgages, in some cases the limit is four.
• Be careful to check any new communications about an existing home equity line of credit (HELOC). You may find it canceled or new borrowing restricted based on more rigid requirements.
If you’re active in wholesaling, you may want to have some discussion with your best buyers who use financing to make sure they’re up to speed on these new rules before you commit to a deal.

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