REIS Loan Programs
Comparison to Fannie Mae Investor Programs
Comparison to Fannie Mae Investor Programs
This section will deal with the major differences between the Fannie Mae Investor guidelines as compared to the product line offered by Real Estate Investor Services, LLC. for long term financing. For the seasoned investor the REIS products could be perfect to help the professional Investor accumulate more properties without the need to stockpile massive amounts of idle reserves just to satisfy the outrageous Fannie Mae requirements.
The Investor is looking to purchase his 10th Investor property. He selected a 2 bedroom 1 bath rental unit with positive cash flow and a DSCR of 1.30. The agreed on purchase price with the seller is $200,000. The Buyer has the 25% down payment, a total of $50,000 and a credit score over 700. The DTI may be a problem, but he is more concerned with the required reserves. Let's check out the two choices. The other 9 units are of equal value with equal loan amounts, a total of $1,500,000.
A loan of $150,000 at 7% has a payment of $997.00, plus taxes of 166.00 per month and 100.00 for insurance. Our estimated required reserve would be around $1,243.00.
The Fannie Mae Guidelines has determined that Investors financing and additional 7th throuh 10th properties increases the risk of foreclosure should markets suddenly change. For this reason reserve requirements increase of 6% of the aggregate loan balances of the 10 properties. Therefore, the required reserve balance of 6% for the aggregate loan balance of $1,500,000 would amount to $90,000. For many investors this becomes the deal breaker.
Cash out eligibility: Owned property for over 6 months
Cash out eligibility: Owned property for over 30 days
Income documentation is what you would expect: W2's, pay stubs, 2 years of tax returns for individual and business, if applicable, and a 4506-T verification.
REIS is similar to a Stated Income product. We focus on the property value, Buyer reserves, credit score, appraisal, rent statistics and the DSCR calculation. This is why we target a close within 21 days.
Fannie Mae will submit all loan balances and report all monthly payment activity to the three credit bureaus. Initially the addition of new credit will reduce your credit score. The revealing of this information could also make it more difficult to obtain additional financing for real estate or other purposes.
We do not post property loan and payment data to credit bureaus. This makes it easier for Investors to find additional sources of funds.
Borrowers must have a maximum DTI of 45% if they have 12 months of financial reserves. Borrowers must have a maximum DTI of 36% if they have 6 months of financial reserves. DTI levels will have an affect on your interest rate.
We do not calculated DTI ratios. One less problem to deal with.
As of Jan. 10, 2018 the 30 year rate was 4.0%, the 7/1 ARM was 3.25% with a 5% life time cap. What does all that mean? On a $200,000 loan your 30 Fixed rate payment would be $954.83 and the ARM would be $870.41 a month. However, for qualifying purpose and DTI calculations the ARM rate is 3.25% plus the 5.0% cap. That calculated payment is $1,502.53. This would be the number used to calculate your DTI.
A 7/1 ARM means that you have the payment of $870.41 for 7 yeas and then it could adjust annually to a level that is determined by the one year LIBOR plus the stated margin. It could not go higher than the 8.25% and is not a baloon product.
We don't have a qualifying rate. We use the our published rate, insurance amount, real estate taxes, HOA fees and retal income. With these numbers we calculate the DSCR. It is that simple. To repeat, we have no DTI.
Private mortgage insurance is charged on all loans over 80%. They are strictly for owner occupied residential loans. Investor loans require 20%-25% down for this reason. In the old days when we were writing 100% sub-prime loans we would do what we called a "piggy back 80/20" loan, a 1st for 80% to avoid the PMI and a higher rate 2nd for the remaining 20%.
Rent Loss Insurance
Investors may be required to obtain a Rent Loss insurance policy to cover 6 months worth of lost rental income.
Not a requirement.
2 Years of Landlord Experience
Fannie Mae requires 2 years of Landlord experience to be able to include rental income in the DTI analysis.