Now more than ever, opportunities to purchase and profit from investment properties are everywhere.
If you’re thinking about purchasing an investment property, though, there are a number of things you need to know about the financing. For example:
Down Payment:
Expect to put down a minimum of 25%. While minimums used to be much lower and are currently much higher than what you would expect to put down on a property in which you intended to live, lenders are protecting their interests by requiring investors to have a significant stake in the property. You are much more likely to want to make an investment property work for you, through thick and thin, if you have a significant financial interest in it.
Assets:
Be prepared to have six months of liquid assets on hand for each investment property that you own. Lenders are requiring this, as they expect some type of vacancy rate in the property, and you will need to be able to cover the mortgage during these times.
Credit:
As you might imagine, credit requirements are steeper than they would be if you were purchasing your own home. Look to have a Fair Isaac Co. (FICO) score above 700 and no major credit dings, such as bankruptcies or foreclosures, for many years prior. If you are overextended with your existing debt, you will have more of a challenge qualifying.
Types of Mortgages:
Typically, when you buy an investment property, you will use conventional financing requirements. The only exception to this would be Federal Housing Administration loans whereby you can purchase a multiunit property under the condition that you live in one of the units.
Down payments will be lower than with conventional arrangements, but you will still have to pay for mortgage insurance.