Investor Loans

Investor loans are a great source of wealth building and a step towards becoming “Mortgage Rich”. It is using other people’s monies to create a stream of income, gain equity wealth, and/or to build a nest egg for retirement. This loan category, however, is not for the faint of heart. Investor loans are harder to qualify for as you need good to very good credit scores, they have larger down payments on purchase money, and have lower LTV’s on cash out refinances. Obviously you are accepting rental payments from tenants and using those funds to pay your mortgage on the property, so being a little business and finance savvy is recommended. If you have a positive cash flow situation (you are collecting more in rent than your monthly mortgage payment), than a stream of income happens while you are also gaining the equity position on that property. This, of course, is the ideal scenario. If you have a negative cash flow situation (you are adding money to the rent to cover the mortgage), you have to make sure that your income will cover that shortage, or you could be late or miss credit payments. A loss of a tenant, loss of income from work, the amount of time a unit may be unoccupied, etc. are all factors that need to be considered.

Normal qualifications for investor loans:

  • Credit scores usually need to be over 660 plus and have a good mortgage payment history
  • 10-40% down payment for purchases, depending on credit scores
  • 90% max (good credit) on rate/term refinances (only paying off existing mortgage)
  • 75-80% max on cash out refinances (pulling out equity or cash for any reason)
  • Costs 1.5% of loan amount to secure same rates as conventional loans
  • Debt ratios are usually maxed out at 46%, depending on credit scores
  • Will only take into consideration 75% of rental income -- national statistics tells us that a rental unit will be empty 2 months out of the average year and it will cost 1 months rent for upkeep…therefore 3 months a year or 25% of that year will not be bringing in money… so if the gross rent collected is $1000 a month…the net rent we can use will be only $750 a month for qualifying purposes
  • Proof of down payment funds (90 day paper trail)
  • Assets usually required as well

If any of these factors sabotages your dream to purchase an investment property, you may always ask the current owner if they will hold a private mortgage note for you or accept a “rent to own” situation.

As with all loans, please consult a mortgage professional for assistance.