Investment Property Financing FAQs: Answered!

December 3, 2012 at 5:51 pm Finance
By Michael Most
Many investors today are looking to purchase investment properties with very low interest rates, but before before you start shopping for a loan, it’s important to know what financing is available and what is driving bank activity. Here are the answers to some common financing FAQs.

1)    How do I find a good investment property to Purchase ?

  • When searching for an Investment Property, the listing will reflect if the Unit or property is a good property for Investors.  Here’s an example on StreetEasy.
  • That said, finding properties designated as investment units can be challenging. The majority of housing stock in New York City is either condos or co-ops. Co-ops don’t allow for investment financing so you would be hard pressed to find a co-op designated as an investment unit. Finding an investment unit in a condo is also tough because condo boards favor buyers who will occupy the unit over buyers who are looking to invest and flip.
  • An online search for investment units is a good place to start but it should be followed up with word of mouth research.
2)    How much down payment do I need ?

  • Conventional loans under $417,000 require a 20% down payment or more depending on the property type.
  • Loans between $417,000 and $625,000 would be a 35% down payment.
  • Portfolio products (i.e. securitized loans with underwriting guidelines that are more flexible than regular loans) vary from bank to bank. Some banks can offer as little as 25% down on loans to $1,500,000. That said, this usually only applies to people clients with investable assets of $500,000 or more.
  • The benefits to portfolio products and programs geared towards high net worth clients are that are not bound to Fannie Mae guidelines. This means that banks offering portfolio products can be more aggressive with their lending.

3)    When purchasing an Investment property, can I count the income I will gain from the property’s rental fees to offset the loan and to help qualify?

  • To offset the loan payment with income gained by renting the property, the buyer must have two years experience as a landlord.  A Schedule E can be used to verify experience in renting and maintaining investment properties.
  • A first time Investor who has no experience can still purchase, so long as he qualifies to handle his personal debt and the proposed loan without using any of the rental income from the subject property to qualify.

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1 Comment

  1. Anthony Davenport says:

    As a former loan officer of 9 years, I can say that this is very accurate.

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