Mortgages For Investment Properties
Hello,
I'm a complete beginner here, so forgive me if this question is REALLY basic.
I just purchased my first home in Arizona and finally experienced the "thrill" of mortgage applications, financial statements, etc. I was lucky enough to have family who loaned me the 20% down payment as a second on the house. That obviously gave me some good leverage with the lenders and probably contributed a lot to my success in getting the loan (as well as avoiding PMI). Had I not had that 20%, I don't know that my income/credit would have been strong enough to get the loan I got. I do earn good money, but I'm self-employed, had some credit blemishes in the past (all taken care of), etc.
So...I'm thinking about picking up a starter investment property sometime in the future. When I go to apply for another loan on an investment property, does the income that property will generate count towards the income the lender will look at to determine if I would qualify for another loan?
The way I'm thinking of it is this: if I were to purchase a second home for myself, I most likely would not be approved, since there's no way my current income would sustain TWO mortgages. So, when buying an investment property, it seems to me that there must be some way the lender determines how much that rental property will net me and would add that to my stated income.
I guess I'm just wondering how the process for applying for a mortgage on an investment property differs from that of an owner-occupied property.
Any help?
Thanks,
Scott
The lease on the rental property will be taken into consideration . How much depends on the lender. Rule most use
Conforming Banks: 75% of lease
Non-conforming: varies
Rate is also higher, and based on credit. LTV is usually lower.
Lori
[addsig]
Thanks Lori. That's pretty much what I figured but it never hurts to ask. That brings about another question though. What if there is currently no lease on the property or the property was previously owner-occupied, but after the purchase would be used as a rental property?
Scott,
I believe that without a lease, the full mortgage payment will be counted towards your debt/income ratio. The lenders will only take 75% of the rent if you have a signed lease or current tenants.
That being said, I would suggest working with a broker who has done investment loans before. I worked with one such was able to side step most of the lenders objections to lending me the money. Some might not garee with his methods, but I was happy to get the loan. I guess it all depends on what you and the broker are willing to come up with to get the deal done.
Godd Luck.
JS.
P.S. I am a beginner myself so I strongly recommend a second opinion.
Scott,
Actually the bank will use a tenative lease. If you have someone interested in renting or know what you are going to rent the property for.
Lori
[addsig]
Lori-
you just saved me a huge headache with the pre-lease idea
thanks!!!!
paul
lori
do you do non-owner occs in michigan??
Hey Paul,
I noticed your from Okemos, I'm from Howell and also just getting started in this business. I am trying to build a team and need help finding a good cpa, investment broker, and investment realtor. I believe I have a good RE attorney in the Foster, Zach, Lowe firm that is located in Okemos. So would you mind telling me who you have been using and if your pleased with them?
Thanks!
Lori has a good idea. Another way you could do it is make the contract contigent upon finding a renter for the property within a specified time frame. This way you have a signed lease at closing and if you don't then you can walk away without any problems.