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Investment Property Loan Program
Purpose
To buy an investment property that you plan to rent out. The property can be a single family, duplex, three plex or four plex. (also known as a 1 unit, 2 unit, 3 unit or 4 unit.)
Down Payments
- You typically need at least a 10% down payment, up to a $417,000 loan on a single family property, which will be an investment property.
- You typically need at least a 10% down payment, up to a $533,850 loan on a 2 unit property, which will be an investment property.
- You typically need at least a 20% down payment, up to a $645,300 loan on a 3 unit property, which will be an investment property.
- You typically need at least a 20% down payment, up to a $801,950 loan on a 4 unit property, which will be an investment property.
Loan amounts higher than the above may require a 25% down payment, or higher.
Any multifamily property that is a 5 unit building or more, is considered a commercial property and will require a commercial loan, which may be 25% down payment or higher.
Underwriting Rules
No gift funds are allowed for the down payment.
Must have at least two months 'cash reserves' worth of principal, interest, taxes and insurance.
Seller contributions may be used toward prepaid items and/or closing costs. Allowed up to 2% of the sales price.
In qualifying for an investment property loan, you can offset the mortgage payment with the potential rent of the property. To determine the potential rent the appraiser will do what is called a "comparable rent schedule", you do not need to provide a lease on the property. Many banks require that you be able to show a history of managing rental property in order to count the rent to offset the mortgage. Last, you cannot use gross rent to qualify; you will have to use net rent. Net rent is usually quickly calculated by taking 75% of the gross rent, hence deducting 25% of the gross rent for maintenance, property management, repairs, etc. Example:
- mortgage payment of new investment property $2200/month
- estimated gross rent on new property $3200/month
- 75% of $3200 = $2400/month net rent
- $2400 net rent - $2200 mortgage = $200/month positive cash flow
In this case, the bank would count this as income, adding $200/month to your other income, and they would also not be counting the mortgage on the new investment property as a debt since the net income more than covers the mortgage.
or
- mortgage payment of new investment property $2300/month
- estimated gross rent on new property $2400/month
- 75% of $2400 = $1800/month net rent
- $1800 net rent - $2300 mortgage = $500/month shortfall
In this case, the bank would count the $500/month shortfall against you, as they would any other debt, such as a car loan, credit card payment, etc.