When financing an investment property using a conventional FannieMae loan, there is a little-known rule that often bites investors. You\u2019ll typically hear it called \u201cThe 2% Rule\u201d and refers to a restriction on the amount of incentives that you can receive as an investor. It\u2019s most often applicable to new home purchases, but technically applies to resales as well. The rule states that for any standard conforming FannieMae loan (your typical \u201cconventional\u201d loan), the amount of funds that can be paid to or paid on behalf of an investor borrower is capped at 2%. There is actually a cap for non-investors as well, but it’s significantly higher.<\/p>\n\n\n\n
The logic behind the cap is to keep people from buying above their limits. For example\u2026 let\u2019s say a builder wants you to buy their $250k new home, and as an investor, you\u2019re required to put down at least 20% ($50k). Without this rule, the builder could raise the price of their home to $300k, give you back $50k at closing, and you walk away with a house for $0 down. It\u2019s the same net cost to the builder, but you also walk away with a house that is $50k underwater from its true market value. It\u2019s also what got us into the recession mess in the first place. The rule would restrict the builder in this example to a maximum of $5k.<\/p>\n\n\n\n
The rule applies to all parties in connection with a loan (seller, lender, agent, etc) and limits the SUM TOTAL to 2%. This is significant because\u2026 Let\u2019s say the builder in our example is offering $3k cash, the lender is offering $3k in closing costs, and your REALTOR\u00ae is a friend of yours so is giving you $500 of their commission. You\u2019d now be at $6,500 in incentives and in violation of the rule.<\/p>\n\n\n\n
So what can you do? By law you have to get your cash incentives down to 2%. Even if your sales agent or loan officer doesn\u2019t catch it, the underwriter will, and it\u2019ll be much harder to deal with later. Be upfront about it. Ask the builder to credit the difference toward the price. If they won\u2019t do that, then ask for some upgrades. Remember, it isn\u2019t the seller\u2019s rule\u2026 they just want to sell you a house!<\/p>\n","protected":false},"excerpt":{"rendered":"
When financing an investment property using a conventional FannieMae loan, there is a little-known rule that often bites investors. You\u2019ll typically hear it called \u201cThe 2% Rule\u201d and refers to a restriction on the amount of incentives that you can receive as an investor. It\u2019s most often applicable to new home purchases, but technically applies […]<\/p>\n","protected":false},"author":1,"featured_media":230597,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[38,37],"tags":[],"acf":[],"yoast_head":"\n