1 – Down Payment – This is the biggest obstacle for most people. Typically the least amount you can put down is 15%, and at that level rates and payments are pretty expensive. 20% of course is better since you avoid paying Mortgage Insurance with 20% or more down. But the best rates and terms come when you put 25-30% down. Once you get to that level you begin to see very aggressive rates and lower payments. The additional advantage is that once you start putting that much down you can finally begin to think of seeing a better cash-flow situation. In San Diego it’s rare to find a property that will be profitable with less that 25% these days.
2 – Credit Requirements – The larger your down payment, the less critical your scores become. As with most loans, the better your score = the better your rate. However, as you put more $ down on the purchase you begin to see the effect of less than perfect credit diminish. As a rule, a target of 680 FICO score should put you in a good position. 740 or more is best.
3 – Qualifying – This is where I see the most misunderstanding. Many of clients come to me thinking that they cannot afford the payments for both loans because they already own their Primary Residence. They do the math and think that the banks will never lend them the money because the sum of the two payments is too high to be justified by their income alone. Here’s the good news. Lenders know that when you are buying an investment property you will have a renter. So part of the appraisal analysis will include a rental survey. That will help determine the amount one might expect to receive, allowing some lenders to give you credit for that when calculating your qualifications. This is more effective with more money down, as you approach a potential break-even point.
Of course good planning ahead and good team on your side (hint = maybe I can help with that?), is the best way to be sure. If you’d like to learn more about how to buy an investment property, or would like to see if you might qualify, give me a call by clicking the link below or email me directly here.
Jeremy Beck | Mortgage Planner | RE Investment Strategist
858 | 395-1114