Lower LTV<\/h2>\n\n\n\n
Plan on having to put down at least 20% of the purchase price if you\u2019re buying an investment property.<\/p>\n\n\n\n
There are exceptions, of course (most notably for house hacking<\/a>, which we\u2019ll delve into later on). By and large, however, plan on putting down 20-40% of the purchase price.<\/p>\n\n\n\n The good news is that you won\u2019t have to worry about mortgage insurance\u2014but that\u2019s really the only good news.<\/p>\n\n\n\n Some conventional loan programs for investment properties allow for 80% LTV, although you should know going in that it\u2019s a best-case scenario. You can also explore real estate crowdfunding websites, which tend to be more expensive than conventional loans, but may be more flexible.<\/p>\n\n\n\n Depending on the lender and loan program, you might also find that pricing goes down alongside LTV. In other words, if you\u2019re willing to put down more money, you may secure a lower interest rate and lower fees.<\/p>\n\n\n\n As a final note, plan on needing at least three months\u2019 payments as a liquid cash reserve.<\/p>\n\n\n\n Related:<\/strong> The Comprehensive Guide for Financing Your Very First Real Estate Deal<\/a><\/em><\/p>\n\n\n\n It will be higher. The end.<\/p>\n\n\n\n Alright, there\u2019s a little more to know. Plan on both the interest rate being higher and the upfront lender fees being higher.<\/p>\n\n\n\n On paper, conventional lenders often quote that their investment property loans are only 0.25-0.5% more expensive than their homeowner loans. In my experience, it never turns out that way. Expect to add 1-3 percentage points more than an owner-occupied loan rate. That means that if a lender charges 4% interest for homeowner loans, you\u2019ll likely pay 5-7% interest for investment loans.<\/p>\n\n\n\n And don\u2019t forget points. Lenders charge up-front fees for mortgage loans, and one \u201cpoint\u201d is equal to one percent of the total loan amount. These obviously add up quickly.<\/p>\n\n\n\n It just gets more expensive from there, as you get away from conventional lenders and toward community banks or crowdfunding websites.<\/p>\n\n\n\n Credit matters, of course, although not as decisively as in homeowner lending.<\/p>\n\n\n\n If your credit score isn\u2019t perfect, you\u2019ll still have options; they\u2019ll just cost you more. A score below 740 will spell higher interest rates, higher lender fees, and lower LTVs. The lower your credit score, the more you can expect to cough up at the table and in ongoing payments.<\/p>\n\n\n\n For borrowers with mediocre credit, conventional loans may not be an option.<\/p>\n\n\n\n Still, investment property financing is often based more on the collateral (the property) than you as a borrower. Remember, lenders know that investors are far more likely to default than homeowners, so they’ve already built some extra caution into the loan programs in the form of lower LTVs.<\/p>\n\n\n\n While a retail lender for homeowners asks themselves, \u201cHow likely is this borrower to default,\u201d investment lenders also ask themselves, \u201cCan we still recover our money if this borrower defaults?\u201d<\/p>\n\n\n\n Your options start dwindling, the more mortgages you have on your credit report.<\/p>\n\n\n\n Once you have four mortgages on your credit, many conventional lenders won\u2019t touch you anymore. There is a program, however, introduced by Fannie Mae in 2009<\/a> to help spur investment that allows 5-10 mortgages to be on a borrower\u2019s credit.<\/p>\n\n\n\n The program requires six months\u2019 payments held as a liquid reserve at the time of settlement. It requires at least 25% down for single-family homes and 30% down for 2-4 unit properties. But with any late mortgage payments within the last year or any bankruptcies or foreclosures on your record, you\u2019re persona non-grata.<\/p>\n\n\n\n There\u2019s also a hard limit of a 720+ credit score for borrowers who already have six or more mortgages.<\/p>\n\n\n\nPricing<\/h2>\n\n\n\n
Credit<\/h2>\n\n\n\n
Limitations on Mortgages<\/h2>\n\n\n\n
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