Investment Property Loans

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Investment Property Loans 

Lending on Properties with Four or Fewer Living Units. 

In general, when you get a mortgage for an investment property you enter a different environment than residential lending, and you need to choose professionals who understand the differences.  A property up to and including 4 units, even a single condo or home for investment purposes are going to require a bigger down payment than an owner occupied property. Your credit score is important, but an average score is not disqualifying.  Most loans for properties described above are still 30 years but the interest rate is going to be about 1% higher than a comparable conventional owner-occupied home loan.  See FAQs below.

Commercial Lending 

When you move past 4-unit buildings and get into apartment buildings, commercial space, malls and so forth you enter the world of commercial lending. The process is going to be a lot more about evaluating the property and looking into your track record as an investor. They are much more relationship based. Down payments are generally in the 20-30% range and terms get shorter. Balloon payments are not uncommon. Your payments in a situation like this are similar to a 30-year loan but you will either need to prepare to pay the balloon at the completion of the loan or refinance the balance. 

 FAQs 

Century Capital Group, Inc. is neither a law firm nor an accounting firm.  This is not legal advice.   Always consult your attorney and accountant in these matters. 

I own an investment property on a contract for deed.  Can I refinance this?

Yes.  After you have made 12 months of payments on the CD.

I own an investment property.  Can I use the equity for a cash out refinance.

Yes.  After you have owned it for 12 months we can use the appraisal to determine your equity.

Is it true that I must have two years of landlord experience?  What if this is my first time? 

No, we have several competitive programs available for first time investors. 

Do I need to provide my personal tax returns?   How Do I qualify? 

No, most programs do not require your personal 1040s.  These loans use the Debt Service Coverage Ratio for qualifying.  Essentially the monthly rental income needs to be equal to, or exceed, your monthly Principal, Interest, Taxes & Insurance payment (PITI).   The property can’t have a negative cash flow (although there are some exceptions to this). 

Can I buy with partners that I am not related to?   

Yes, you can buy with partners who aren’t your relatives. 

Can I buy in or with an LLC? 

Yes, however you will be required to sign a personal guarantee.  

How is the rental income counted? 

For new investment property purchases, income will be calculated based on the lesser of the rental income stated on the existing lease agreement or the appraiser’s opinion of what can be expected for a specific market. Once you’re established, the lease will govern.  

Are gift funds allowed? 

No, gifted funds are generally not allowed. The minimum down payment for an investment property must the borrower’s own money. 

Do I need reserves? 

Yes, while some loan programs require investors to show as little as two months worth of PITI, some require more.  Other factors such as loan to value and credit score matter here. 

Are the requirements different if I want to buy a condominium? 

Yes, there are some added hurdles in the loan process if you’re considering a condominium. Among other potential issues, the homeowner’s association must prove that it’s in good financial standing or that it has enough in reserves if repairs are needed. In addition, a statement from the condo association is required to show no lawsuits exist among current owners and/or the association. There are some very specific documents that will be prepared by the HOA prior to the completion of the sale. 

What are “Hard Money” loans and how are they different from the Investment Property Loans described above? 

What is described above is for long term financing.  Hard money loans are short term loans generally used for rehabbing a property, but not long-term ownership.  We can help you with this as well.  Please call for more details.