Fannie Mae Guidelines Change: How many mortgages do I have now?

This article is written by ReCasa Financial Group‘s Graham Montigny CRMS.  

Fannie Mae, who allows up to ten total mortgaged properties, made a recent change to its guidelines regarding how it counts the number of mortgaged properties each applicant has if the homes are held in the name of an LLC or Partnership. Prior to this change, commercial debt in the name of the LLC or Partnership  for a 1-4 family residential home, even if personally guaranteed, was not deemed to be a personally mortgaged property.

Now, mortgage debt for a 1-4 family home owned by an LLC or Partnership, even if a commercial mortgage and not appearing on a personal credit, IS considered a mortgaged property. Wait, it gets worse.  If the LLC or Partnership has a commercial blanket mortgage with 12 residential 1-4 family homes held in the blanket mortgage, it now counts as 12 total mortgaged properties.  Before the change to the guidelines, it did not count at all.

Corporations, S and C types, however do not have this burden of commercial mortgaged property debt. As a mortgage broker, my active real estate investors who originally formed their businesses as LLC’s are being compelled to change their business structure to an Inc.

Sadly, for those with existing LLC 1-4 family debt there are added steps required before the mortgage debt will not be considered part of the ten total allowable mortgaged properties.  The existing vesting of the home must be changed with the county to the Inc, as well the modified underlying note and mortgage with the existing creditor.  Once all homes are vested and the debt is held in the Inc. company name, then the homes are not considered a personally mortgaged property.

In some areas, above and beyond the hassle and cost of the various corporate filings, there will be transfer taxes that have to be paid to execute the title change and that can amount to tens of thousands of dollars.

Graham Montigny

As this change is recent, many CPAs and attorneys are not aware of the new lending rules and may state that this is not required. Please check for yourself. Fannie Mae posts it guidelines for all to read.

https://www.fanniemae.com/content/guide/sel073013.pdf

Go to page 253 and read the section on Multiple Financed Properties for the Same Borrower.

Likely, there will be legal and tax consequences for changing business entity types and we encourage everyone to please seek the appropriate legal and tax advice.  This information is offered as mortgage qualifying advice, not legal or tax advice.  Having helped my own clients with this change, I am glad to offer insights to the process.