The great minds in the mortgage business continue to make it simpler for everyday folks to deal with financing.
Fannie Mae, for example, has made it easier to finance a new home while converting your existing residence into an income-generating rental. And if you recently -- very recently -- paid cash for a property, Fannie also will allow you to finance the deal after the fact, as long as you do so within 180 days.
Meanwhile, B2R Finance, a company that provides buy-to-rent funding for investors, is now in the market with single-property loans for mom-and-pop landlords. And in the super-high-priced San Francisco Bay Area, the San Francisco Federal Credit Union is offering nothing-down loans of up to $2 million.
Fannie Mae doesn't make loans; rather, it buys loans from primary lenders. And when the secondary market giant signals it's changed its requirements, the main street marketplace tends to follow.
In 2008, at the height of the financial crisis, Fannie Mae changed its rules to make it much more difficult to use phantom income from "renting" the current house to qualify for a loan on a new place. This was because people would tell their lenders they intended to rent out their old house when, in fact, they had no such desire. Then they'd default on the old loan as soon as the new loan was secured -- a practice called a "strategic default."
"So what?" reasoned these defaulters. "Since I now have a new loan on a more affordable house, I'll let the lender foreclose on the old one."
Now, reflecting current market conditions, Fannie has quietly gone back to its precrisis rules, according to Jude Landis, vice president of single-family credit policy at the mortgage giant.
In other words, lenders can once again rely on such standard requirements as income and cash-reserve documentation. They no longer have to confirm the borrower's equity position in the proposed rental with expensive broker price opinions or appraisals, paid for by the borrower.
Also, the rule that borrowers with less than 30 percent equity must have six months' worth of mortgage payments in cash reserves has been waived. So has the requirement that a tenant's security deposit be confirmed.
Fannie Mae's delayed financing program for cash buyers isn't new. But most people don't know about it, says Chris Carter, a loan officer with the Paramount Residential Mortgage Group in Naples, Florida.
There are plenty of reasons to pay cash for a house. Perhaps most importantly, it makes for a much "cleaner" deal with no contingency for financing. Sellers tend to see cash offers as golden, and are often willing to give a little on the price to reel them in.
While an excellent bargaining ploy for buyers, an all-cash sale tends to tie up a lot of their money -- money that could be put into a higher-yielding, more liquid investment.
Typically, cash buyers have to wait a minimum of six months to refinance the property, and only then can they release some of their money. With delayed finance loans, though, you can get more of your money back just a few days after you close.
To qualify, the original purchase must have been an arm's-length transaction: Deals between related parties are not eligible. Also, the settlement sheet must show that no financing whatsoever was used. Funds for the purchase must be fully documented and sourced.
If you meet these and other requirements, delayed financing can be used for primary residences, second homes or investment properties for up to 70 percent of the value. Better yet, the loan amount can include closing costs and prepaid fees, as long as the maximum loan-to-value ratio is maintained.
With delayed financing, investors can out-bargain regular buyers, or fund their transactions using the new Foundation Loan from B2R.
B2R and other companies that offer buy-to-rent financing typically deal with people who have rental portfolios of 10 or more properties. But the Foundation Loan is for small-time, beginning investors who buy just one property -- or, at least, one property at a time.
The product, which is available online through B2R's Dwell Finance Investor division (dwellfinance.com), can be used to acquire or refinance properties. Loan amounts can be as little as $60,000 or as much as $750,000, and rates are fixed for up to 30 years.
B2R CEO Jason Hogg says investors are "craving" single-property loans like this: He says the company took in 119 applications over Halloween weekend, before it even began actively marketing the product.
Finally, there's the POPPYLOAN from San Francisco Federal, a 60-year-old credit union with some 34,000 members serving the Bay Area. With POPPY, which stands for the "Proud Ownership Purchase Program for You," members can borrow up to $2 million without taking a dime out of their own pockets. There isn't even a requirement for mortgage insurance.
The loan is a 5-5 adjustable-rate mortgage, meaning that it will adjust every five years, and only by a maximum of 2 percentage points each time (up to six points over the life of the loan).
The mortgage is a response to the abnormally high rents in the Bay Area. Many there are paying more to their landlords then they would on mortgage payments, but because they can't put together a down payment, they've been stuck in a rental black hole. POPPY may offer a way out.