Any residential property that is not going to be your primary home or a vacation home, is considered an investment property, whether or not you are going to be renting it out or purchasing it for investment purposes. That means that if you are buying a home for your children or parents, it will still be considered an investment property by the lender and subject to the pricing and parameters for investment loans. If you are purchasing a second home property that is less than 50 miles from your primary home, it needs to have distinct differences to be able to classify it as a vacation/second home and not an investment property. An example would be if it is in a resort community, on a lake or with lake access. If there are no attributes to prove it is acceptable as a second home, it will be classified as an investment property.
Residential properties that are 1 to 4 families can be purchased with standard residential home loans. They usually require at least 20% down payment for a purchase and usually 25% equity in them for most (but not all) refinances. You might need 25% down payment for a 2 unit property and 35% down payment for a 3 or 4 unit property. We have lenders that will allow you to own up to 10 financed properties. After 10 properties, it will require commercial financing, which we also have available.
The rates for an investment property is a bit higher than that for a primary residence. You can choose to pay an origination fee in lieu of the higher interest rate. Seller contributions towards closing costs and pre-paid fees are allowed up to 2% of the purchase price.
Do you need to show rental income on the investment property? If your debt to income ratios allow you to cover the monthly payment of principal, interest, taxes and insurance on the investment property, then it is not necessary to show any expected income from the property itself. If you do need the proposed income from the property to qualify, then the appraisal must also include a rental schedule. This is a form the appraiser will complete based on other rental properties in the area. That will allow use of proposed income, even if you do not have a lease agreement on the property. However, to use proposed income that is not currently under a lease, the underwriters will probably want to see a history of being a landlord.
Investment property loans do require that you have reserves that can be documented. The reserves must be in liquid assets or assets that can be turned into cash very quickly, such as a money market account. If you are purchasing a single family home, usually only 2 months of the total payment, PITI, is required. However, for every additional property that you own they often require an additional 6 months of reserves that must be verified.
A residential mortgage loan can have up to 4 individuals on the purchase loan. A corporation cannot purchase using residential financing. However, you may choose to place the property into an LLC or other form of corporation after the close of escrow. We will be happy to refer you to one of the highly qualified real estate attorneys that we work with to advise you of your best options.
We also have many lenders available for all types of commercial properties. We prefer to use lenders that specialize in the area you need. Some are best for apartment buildings and others for warehouses. There are lenders for churches, nursing homes and professional buildings just to name a few. There are also commercial lenders that specialize in hard to finance properties or borrowers with damaged credit. We can sift through all of the available options to find you what is best suited for your situation.
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