Overview of Mortgages for Colorado Investment Property
How does the qualifying process work when buying investment property? Qualifying for an investment mortgage is very similar to the standard process of qualifying with one additional consideration - the rent income that is expected from the investment property you plan on buying. The expected rental income is generally set (for lending purposes) as part of the appraisal process, in some special cases a two year rent history of the subject property is also requested (information the seller provides). Once an expected rent amount is determined, 75% of that number can be used to offset the proposed mortgage debt for the purpose of qualifying for the new mortgage (debt-to-income ratios).
What are the incremental costs? You can expect to pay a higher interest rate or higher closing costs for an investment property mortgage. This is a function of the increased risk factors associated with a non-owner occupied mortgage, and the resulting charges from the investor (Fannie Mae, Freddie Mac, or some other private investor for alternative solutions). These charges can show up as discount points in the transaction. You should also have the option of premium pricing these costs to avoid extra out-of-pocket expenses.
Should you turn your current home into an investment property? One option that may be worth considering as you evaluate your investment property plans is turning your current primary residence into an investment property. This solution allows you to keep your current financing in place, perhaps even tapping the current equity in your home for the purpose of buying your new primary residence, without paying the higher rates/closing costs associated with an investment property mortgage.
Understanding the income and appreciation potential for the properties you are evaluating is critical in making smart investment property purchases. Please talk with your mortgage consultant for the name of a local Realtor who can help educate you about these important considerations.
Conventional Mortgage Solutions for Investment Property: Fannie Mae and Freddie Mac have specific rules about prerequisites, available LTV's, loan amount, and the approval process. These variables are a function of how long you have owned investment property, your credit profile, and your income. Ultimately, the answer to the available conventional solutions is found with an automated underwriting decision that your mortgage consultant helps you understand.
Alternative Mortgage Solutions for Investment Property: This category involves every other investment property financing solution. The range of solutions includes a full complement of mortgages that provide solutions for the limitations imposed by conventional solutions ... to a point. There are no zero down investment property mortgages, though your mortgage consultant should be able to help you structure a set of loans to accomplish this goal. Because of the many limitations, it is very important that you talk with your mortgage consultant about your plans before you start identifying property.
Refinancing an Investment Property Mortgage: While refinancing investment property is an option, it is important to know that limitations exist on such details as LTV as well as cash back. Please talk with your mortgage consultant for all the details.
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