Is a 25-30% Down Payment Acceptable for New Fannie Mae Backed Loans for Investors with over 4 mortgages?

Many investors are certainly rejoicing in the fact that they can now go in and purchase some ludicrously-priced houses and get good Fannie Mae-backed loans.

However for investors with between 5 and 10 mortgages, the down-payment requirement is 25-30%. Is that acceptable?

We have all been spoiled rotten when credit was flowing like wine and even investors with many dozens, if not hundreds of properties, got used to paying only 10% down.

Clearly those days are gone and every investor knows that 20% down is now the norm. This holds for people with under 4 loans as well.

That means that if an investor has 5-10 loans, the ADDITIONAL down payment is really only 5-10%.

One item to keep in mind is this:

When credit was easy and prices were high, such as in 2005, investors wouldn’t blink at buying a house for $275,000 and putting 10% down. This means the down payment was $27,500 (plus closing costs, of course). PMI was also part of the equation as an extra.

Today that same house, in the right markets, after cratering in price to perhaps $180,000, can sometimes be bought from a desperate bank for the absurd price of perhaps $115,000. 25% of $115,000 is $28,750. There is NO PMI and interest rates (for Fannie Mae backed loans) will surely be better than they used to be with 10% down (no PMI also helps the payments).

Thus despite the fact that the percentage of the down-payment is higher, the actual cash amount is virtually the same for the same property.

If you add to that the fact that in a few years, one can refinance the property for most likely 60-70% of the value at that time, it may be quite possible that after such a refinance one would actually get every penny they had put into the down-payment back. This is because the absurd lender-fueled prices are unlikely to persist for too many years. A property such as the one discussed here may very well be worth $200,000 in a few years (no one knows for sure, of course, but in this example $200,000 is not much more than the raw construction costs and thus is a likely value to be achieved once the bank panic subsides). If the house is indeed worth $200,000 in a few years, then even a 60% refinance will yield $120,000 - enough to pay off the existing loan and get back every penny that had been put as a down payment.

The new Fannie Mae guidelines are not perfect but they sure open the door wide to investors with over 4 properties. The down-payment requirement is not as onerous as some may reflexively think.