When it comes to financing a rental property, there are essentially two types of loans available: conforming loans and non-conforming loans. Conforming loans are loans that meet the criteria set by Fannie Mae or Freddie Mac, and non-conforming loans are everything else. While government financing is usually an affordable option, there are strict guidelines in place for eligibility. Let’s dive in:
- Number of mortgaged properties:
- For a manually underwritten loan with Fannie Mae, borrowers with more than 5 mortgaged properties are ineligible
- For a desktop underwriter, borrowers with more than 10 mortgaged properties are ineligible
- Debt-to-Income Ratio (DTI):
- 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
- Credit Score:
- Purchase: The minimum credit score for a purchase loan with Fannie Mae is 640, and that is only acceptable when you have 12 months of liquid cash reserves AND are fronting a down payment of 25% or greater.
- Cash-Out Refinance: The minimum credit score for a cash-out refinance with Fannie Mae is a 700, and that is only acceptable when you have at least 12 months of liquid cash reserves.
Want more help in determining if Fanie Mae is a good option for you? Download our Decision Tree.
Related: Loan Programs Available for SFR Properties, How Investors Are Financing Their Rental Properties