Month: November 2010

The opportunities for purchasing investment properties in the current market are unprecedented due to historically low mortgage rates and home prices. Investors purchase homes for one of two reasons. The first is to repair and then resell the property. The second is to rent out the property so they have an income stream.

In either case, buyers need to make whatever scenario they are looking to make happen work on paper before doing it for real – in other words, they have to run all the numbers. This means getting input from outside experts such as real estate agents, appraisers and contractors, all of whom can provide buyers with the information they need to make an informed decision. Investors should plan on putting 25% to 30% down on an investment property and have a minimum credit score of 720. Any late mortgage payments in the prior 12 months, or bankruptcies in the previous seven years, will make them exempt from the program.

The Federal Housing Administration (FHA) does no investment property financing, with the exception of multi-unit properties where the owner intends to occupy one of the units. This means the FHA will likely use Fannie Mae or Freddie Mac guidelines.

Investors should plan on paying a higher interest rate on any investment property mortgage. As far as assets go, lenders will be looking at six months of mortgage payments, including taxes and property insurance. This may be in the form of a checking or savings account, or a percentage of some type of retirement account such as a 401(k).

With historically low interest rates, owners of Federal Housing Administration (FHA) mortgages may be wondering why there’s a lot of talk about streamline refinances.

An FHA streamline refers to a refinance of an existing FHA loan into another one, with streamline, or limited, documentation.

The requirements are pretty straightforward in that you must have lived in the property for at least six months and must have been current on all FHA mortgage payments for at least 12 months, regardless of where you have lived.

The main difference between a streamline refinance and either a traditional FHA refinance or an FHA purchase transaction is that in certain circumstances no appraisal is required on a streamline, regardless of the current market value of your home.

That being said, the new mortgage amount may not exceed the unpaid balance on the original mortgage.

This means that no closing costs may be rolled into the loan.

If you have a property that you had originally purchased with an FHA mortgage and have since moved into another one, making the original home an investment property, you may use only the no-appraisal option, meaning that you would be required to pay out of pocket for the closing costs.

Streamlines are referred to as rate and term, or no-cash-out, refinances, in that no cash may ever be taken out of the property, regardless of the original loan amount, or the balance, regardless of which appraisal option is used.

The interest rate on a streamline refinance mortgage must be better than on the loan that it is replacing.

Each type of lender has different minimums on credit scores, most of them higher than what the FHA requires.

However, it’s a good bet to assume borrowers will need a credit score of at least 640 to get an FHA streamline refinance done.