Investment Property Mortgage Requirements

If you’re looking for a stable, highly profitable method of earning passive income, then there are few options better than property investment; especially in today’s in-demand housing markets.  Unlike other investment vehicles, real estate offers novice investors plentiful opportunities to get ahead of more established competitors with little more than local knowledge, and some strong negotiating skills.

Whether you want to rent, renovate or simply sit on your property with the expectation of future appreciation, there’s no end to the ways in which you can secure a handsome return on your investment. Of course securing that investment is another matter altogether, especially for those without a big bankroll already in place.

Because commercial property loans are generally considered more risky than residential loans, investment property mortgage requirements can be quite stringent. So if you’re looking to make your investment dreams a reality there are a few things you’ll need to ensure, first.

Cash At Hand

Because mortgage insurance doesn’t cover insurance properties, prospective buyers are expected to have at least a 20% down payment readily available. However, if you have more than four standing mortgages to your name already, then the minimum down payment sum is usually increased to 25%.  Remember the source of income for your down payment has to be clearly documented and present in your accounts for a t least 60 days prior to your loan application. This applies even to gifted funds.

Apart from that sizeable sum, you should also have at least 6 months of liquid cash available for payments on your property. If you’re currently in negotiations with mortgage lender regarding a specific property, then make sure to ask for a monthly payment estimate, so you can start taking necessary precautions in advance.

Proven Track Record

While a 25% down payment could allow you to qualify for a conventional loan on a FICO score as low as 620, a similar down payment on a rental property would require a score of at least 640. Generally any score below 740 will result in an unfavorable interest rate on the loan, unless you choose to pay a fee to remain at the same rate.

For banks, your debt-to-income ratio is always a big consideration in approving or denying a loan, so if you have a sizeable amount outstanding on your primary residence your chances of securing a loan through conventional finance may be lowered.  In this case you may need to look for alternative financing vehicles such as a home equity loan, or a cash-out refinancing of your primary property.

If you’re looking to purchase your property for rental purposes then lenders will definitely assess your ability to function as a reliable landlord for your tenants. If you have no previous property management experience then this might make the loan approvals more difficult.

Housing Condition

Before a lender signs off on a loan they will look to ensure that the property is in at least livable condition. That means the foundational structure of the home should be free from damage (floors, walls, roof), and the major systems inside the home should be fully functional (plumbing, heating, electrical).

Need More Assistance with Your Investment Property’s Mortgage Requirements?

Christopher Lechner specializes in purchasing southern California real estate and can provide you with expert guidance in your search for financing. Call Christopher now at (565) 221-0055.