Investment Home Purchase Mortgage Lending Guidelines
This article is about Investment Home Purchase Mortgage Lending Guidelines
Investment home mortgage loans are conventional mortgage loans and conventional mortgage lending guidelines apply.
- Government Loans such as FHA, VA, USDA are only for owner occupant homes
- Borrowers cannot purchase second homes and investment home purchase with government loans
- We will cover several typical investment home mortgage case scenarios on this blog
- Investment Home Purchase are considered riskier loans by lenders than owner occupant home loans
- The way lenders sees it if there is a financial crisis in one’s household, the person is likely to bail on their investment properties than they would their primary owner occupant homes
- This is why mortgage rates on investment home purchase loans are higher than owner occupant loans
Also, large down payment is required on investment properties than it is on owner occupant and/or second homes.
Minimum Down Payment On Investment Home Purchase
The minimum down payment required for an investment home mortgage loan is a 15% down payment.
- With a 15% down payment investment home mortgage loan, mortgage insurance will be required
- To avoid having to pay private mortgage insurance, a minimum of a 20% down payment is required
- Investment homes can be a one to four-unit property to qualify for Fannie Mae and/or Freddie Mac Conventional Loans
- Many investment home mortgage loan borrowers want to know whether they can use the potential rental income from the investment home purchase if the subject purchase property is vacant
- The answer is yes
Real Estate Investors can use the potential rental income of the investment home subject property to qualify for investment home mortgage loan with 25% down payment.
Can Rental Income Be Used With Investment Home Purchase?
Home Buyers who are purchasing an investment home and need the investment home rental income to qualify for the investment home mortgage loan and the property is vacant, an investment home appraisal will be ordered.
- The appraiser will research comparable rental income nearby intended investment home purchase and will come up with a rental income market value
- The full market value rental income is not used
- Only 75% of the market rental income will be used as additional income to qualify for investment home mortgage loan
Some lenders will go up to 85% of the market rental income for mortgage qualification purposes.
Owner Occupied Home To Investment Home
Many homeowners who currently own an owner-occupied residence and intend on purchasing another owner-occupied residence wonder if they can rent out their current owner-occupied residence and use it as an investment home.
- Home Buyers can do this, no problem
However, the new home buyer will need to qualify for both mortgages:
- The current owner-occupied home mortgage and housing expenses
- The new owner-occupied home purchase
- Many folks cannot qualify for both mortgages and need to get the rental income of the first owner-occupied home in order to qualify for the new owner-occupied home purchase
They can use 75% of the potential rental income on their exiting property:
- However, 25% of equity is required
Using Potential Rental Income On Exiting Property
New home buyers who intend on keeping their exiting homes as a rental when they purchase a new owner occupant home can do it with potential rental income. In order to do this and be able to use the potential rental income of their first owner-occupied home, they must have at least 25% equity in their home.
- A refinance is not necessary
- The lender will order an appraisal of the first owner-occupied home and see what value the appraisal come in at
- The borrower then needs to pay down the equity so the loan to value is at least 75% LTV
- The appraiser will come up with a market rental income rate
75% of that market rental income rate can be used to qualify for the mortgage loan borrower’s debt to income ratio.
Qualifying For Mortgage With Direct Lender With No Overlays
Gustan Cho Associates is a national lender with no overlays on government and conventional loans. Gustan Cho Associates Mortgage Group also offers non-QM loans and bank statement mortgage loan programs for self-employed borrowers. Borrowers who need to qualify with a direct lender with no overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] Our team of licensed loan officers and support staff is available 7 days a week, evenings, weekends, and holidays.