Investment Property Loans: 10 Percent Down
Now
is the time to buy a one to four unit investment property. Interest
rates are at an all time low. And unfortunately, due to the number
of foreclosures, you might be able to purchase a great investment
property at an affordable price.
According to Warren Buffett, "Opportunities come infrequently. When
it rains gold, put out the bucket, not the thimble."
Purchasing an investment property is not unlike purchasing a home;
the rules are just a bit tighter.
Investment property minimum down payment
The government backed loans, FHA, VA and the USDA loan programs do not permit investment financing, however, the Federal National Mortgage Association, better known as Fannie Mae provides funding to participating lenders for investment properties. The down payment requirement for investment loans that are underwritten by an automated underwriting is 15% for a single family dwelling. Two to four unit dwellings require a 25% down payment.SOURCE: Fannie Mae Eligibility Matrix
Manually underwritten down payment
The down payment requirement for investment loans that are manually underwritten is determined by the applicant's credit score and debt to income ratio. This calculator will estimate the minimum down payment.
| Debt to Income | 36% (or less) | 36% (or less) | 45% (or less) | 45% (or less) |
|---|---|---|---|---|
| Credit Score | 640 | 680 | 680 | 700 |
| Minimum Down Payment Percentage | 25% | 10% | 25% | 10% |
Minimum reserves
Fannie Mae requires the equivalent of 6 mortgage payments in reserve post closing/settlement
Seller paid closing costs (seller assist)
Fannie Mae will permit the seller to pay up to 2% of the sales price to the investor's closing costs. The seller assistance can take the edge off the private mortgage insurance with down payments less than 20%.
Frequently
Asked Questions About Second Home Mortgages
Q. What are interest rates for investment properties?
A. Investment properties pose a greater risk for lenders. A borrower who
is facing financial difficulties is more likely to default on an
investment property loan than their personal residence. Because of the
risk, interest rates and private mortgage insurance premiums for down
payments less than 20% are somewhat higher. The interest rate on
investment properties are about .50% higher than owner occupied interest
rates.
Q. How many investment properties can I own?
A. Fannie Mae will permit as many as 10 financed investment
properties, however, you will have to meet a long list of
requirements to be eligible for the 10 mortgage limit. In reality,
the limit is 4 investment properties.
Q. Why are interest rates higher for investment properties?
A. As stated previously, there's more risk to the lender. The higher
the risk, the greater the interest rate.