Investment Property Financing – Latest Requirements
This is a Guest Post by Ryan Huemmer, the lender we use on our own rental properties.
As an owner of investment properties, I get no greater joy than helping someone purchase their first investment property. I’ve worked with AnchorBank for almost 8 years and the world of investment property financing has changed dramatically. With larger down payment requirements, higher interest rates and fees, limits to the number of properties financed and minimum cash reserve requirements. It’s best before you contact Keith & Kinsey about buying an investment property, you need to consult with a mortgage lender…….hopefully me. Ryan Huemmer, 221-6533 or firstname.lastname@example.org
Fannie Mae only finances 1-4 unit investment properties. The down payment requirement varies based on the number of units. When buying a 2-4 unit property a 25% down payment is required. In addition to standard closing cost Fannie Mae has its own fees. The Investment Fee is 1.75% (fee times the loan amount) and the Multiple-Unit Fee is 1.00% so you would have to pay a 2.75% fee to buy the property. That fee can also be converted to an interest rate increase instead. (1.00% equals a 0.25% rate increase) The maximum fee conversion allowed is 2.00%. So you can get market rate with a 2.75% fee or market rate plus 0.50% with a 0.75% fee.
A borrower who owns 1 to 4 financed properties has a 2 month PITI reserve is required for each property. A borrower with five to ten financed properties will require 6 month reserve for each property and the required down payment is 30%. Fannie Mae will not finance more than 10 properties and properties in LLC’s.
There is really so much to know about buying an investment property so I was only able to touch on the key guidelines. With record low mortgage rates, no interest being paid on deposit accounts, extreme volatility in the stock market and home prices down; why not invest your money in real estate. Whether it is for additional tax deductions, monthly cash flow or just to have someone else grow your equity position in a property……..I believe in investment properties.
Added note, by Keith… These requirements that Ryan mentions are for non-owner occupied investment properties. Financing for an owner occupied rental property can be much easier. So, if you are a first time home buyer considering income property ownership, think about buying an multi-unit property and living in one unit. I started with living in one half of a duplex that I purchased, and it worked out great.