Fannie Mae and Freddie Mac are tightening the underwriting criteria for second homes and investment properties. They will also begin to limit the number of these mortgages that they will acquire.
“Recent amendments to our senior preferred stock purchase agreement with Treasury impose additional risk criteria on the loans we acquire,” the Government Sponsored Enterprise said in a letter. “One of those restrictions is a 7% limit on our acquisition of single-family mortgage loans secured by second home and investment properties.”
This means that non-owner occupied transactions (2nd homes and investment properties) will become a bit more difficult in terms of qualification and slightly more expensive, in terms of interest rates.
Lenders are now being forced to add to the cost of the loan and raise interest rates – anywhere from 50 basis points to as high as 250 bps. That can mean an increase in rate of 1/8% to 1.25%, depending on the investor.
Finance of America, my employer, has added 50 basis points for all 2nd home and investment property purchases and refinances. This is on the low side, relative to many in the industry, as others that I’ve spoken to have added as much as 250 bps.
From Investopedia: “Basis points, otherwise known as bps, are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.”
Don’t hesitate to contact me for more information to see how this might impact your upcoming purchase.