Posted by Hannah Lapin ● Jun 24, 2020 9:00:00 AM

Guide to SFR Real Estate & Types of Loans

stacks of coins with plants growing from them

What does SFR mean?

An SFR, or single-family residence, refers to properties that are from 1-4 units. SFR real estate is appealing to both real estate investors and owner-occupiers. Investors appreciate their affordability, ease of management, and appeal to renters. Owners are drawn to the freedom of homeownership and the appreciation and equity. Read on to learn about how SFR properties are financed and what you should know if you’re considering investing in one

What are the types of SFR loans?

When it comes to financing a single-family home, there are essentially two giant buckets: government-sponsored loans and private label loans. These can further be broken down into consumer/owner-occupier loans and business purpose/investor loans. Let’s dive into each of these four categories to gain a deeper understanding.

Government-Sponsored Consumer Purpose Loans

These loans are also less expensive and meet the criteria established by Fannie and Freddie. These loans are targeted at owner-occupiers and often first-time home buyers. Here are some special loan programs under this branch:

  • FHA Loans: These loans are designed for low-income borrowers and require low down payments and credit scores.
  • VA Loans: These loans are designed to help veterans become homeowners and are backed by the U.S. Department of Veterans Affairs.
  • USDA Loans: These loans are designed to promote rural development and are backed by the U.S. Department of Agriculture.

Government-Sponsored Business Purpose Loans

This bucket of loans is less expensive, yet more restrictive. They can be very hard to qualify for, especially for self-employed investors with multiple rental properties.

  • Conforming Investment Property Loans: Conforming loans are loans that meet the criteria established by Fannie Mae and Freddie Mac. They come with strict qualifications such as a maximum Debt-to-Income Ratio of 45% with 12 months of financial reserves and a maximum Debt-to-Income Ratio of 36% with six months of financial reserves.

Other conforming loan eligibility criteria

  • Number of mortgaged properties:
      • For a manually underwritten loan with Fannie Mae, borrowers with more than five mortgaged properties are ineligible
      • For a desktop underwriter, borrowers with more than 10 mortgaged properties are ineligible
  • 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.

Private Label Consumer Purpose Loans

Lastly, these loans are designed for consumers who do not meet the criteria set forth by Fannie and Freddie. These typically include jumbo loans and non-QM loans:

  • Jumbo Loans: These loans exceed the limit established by Fannie and Freddie, which is $548,250 as of 2021.
  • Non-QM Loans: Examples of non-QM loans include bank statement loans for self-employed individuals and foreign national loan programs.

Private Label Business Purpose Loans

This loan group tends to be more expensive, yet flexible and can help investors grow their businesses. Here are some of the loan programs that fall under this category:

  • Investor Renovation Loans: Also known as fix and flip loans, these are short-term loans for investors to purchase and rehab non-owner-occupied properties.
  • Investor Rental Loans: These loans are tailored to meet investment strategy needs and often offer low documentation and no income verification, like Visio's Rental360 Loan Program.

Which SFR loan program is right for you?

We hope the above categories can help you easily find what kind of loan you need. If you’re a consumer, look into those options. For a business, look at business purpose loans — then determine if you meet the criteria for government-sponsored loans and go from there.

 

If you are a rental property investor who has exceeded the number of mortgaged properties or can no longer meet the DTI requirements set by Fannie and Freddie, Visio can help.

 

Our leading rental loans are tailored to meet the needs of investors with:

  • Full 30-year terms, no balloons
  • No DTI or personal income qualification
  • The ability to protect your assets and finance through an LLC

 

Contact Us to Get Started

 

More Resources

 Related: Should you conform? Expand Your Wealth With a Cash-Out Refinance

Topics: Real Estate Investing, Finance