Real estate is an attractive investment strategy to create income and diversify your portfolio. It can also carry some tax advantages that you’d need to discuss with your CPA. We are financing more and more investment properties this year as returns from other investment vehicles often lag real estate’s returns. Before you get started, here is a helpful FAQ to guide you on financing rental property:
What Does It Take to Buy an Investment Property?
- At least 20% down payment. There is no mortgage insurance or second lien.
- Reserves in the bank. This is ‘rainy day’ money. Lenders are looking for 2 to 12 months reserves on the full PITI payment on all owned properties.
- Strong credit. Scores > 740 get the best rates.
- Debt-to-income ratios will need to be fewer than 45%.
What are some common preconceptions that many customers have? The most frequent I hear is that you can use the entire rent as income. Not so fast here. Guidelines allow lenders to use 75% of the gross income and a lease needs to be in place with proof of deposit and first month’s rent.
Another common question revolves around how many properties can be financed. Under FNMA rules, a borrower can finance up to ten properties.
Thirdly, we can’t count rental income for first time borrowers unless there are strong compensating circumstances. Lastly, out-of-state/out-of-area investors must have property management set in-place in order to close a loan. Though qualifying to buy investment property is a tad more difficult than buying a primary home, the process is the same and rates are very attractive.
Contact Joel Richardson
We can guide you through everything from applying, to qualifying, to cash flow analysis to return on investment analysis. Not only am I a veteran loan officer, I’m also an experienced real estate investor who can coach you through the entire process—before and after your purchase. Whether you’re looking to invest in Austin, Georgetown, Round Rock or elsewhere, contact mortgage expert Joel Richardson.