Let me be clear. When I say that these investment property loans (portfolio loans) are ridiculous, I don’t mean that in a negative way. I say it from a ridiculously awesome standpoint.
Simply put, the residential mortgage guidelines have made things a bit difficult for real estate investors to grow their portfolio. But it doesn’t have to be that way anymore…
When real estate investors are looking for a mortgage for rental property, and they already have several mortgages on investment properties, conventional guidelines say they cannot finance more homes for investment purposes.
Some lenders will allow up to 10 financed properties.
Some lenders will allow up to 20 financed properties (rare).
Most of the time, that’s only allowed if the home that you’re looking to buy is going to be your primary residence. So most investors with a portfolio of financed real estate are kind of stuck if they want to acquire more property.
Real Estate Investment Loans, also commonly known as a portfolio loan.
These loans are designed to cater to the real estate investor who would rather not liquidate their reserves to purchase more real estate. This is specifically, a perfect mortgage for rental property.
5 Reasons the new Investment Property Loans are a Life Changer
- No income is reported on the loan application. The borrower is not qualified based on their employment. Think about it, if you’re buying a rental property, would you be making the payments on that loan from earned income? Heck no. The tenant will be making the payment for you. That’s why you got into the real estate investing business to begin with. To get into an appreciating asset that pays for itself. It makes sense to approve an investment property loan based on the cash flow of the property. (see below for how the expected property cash flow is determined)
- No maximum number of financed properties. This one is huge. Why? Because so many real estate investors tend to hit a road block when they hit 10 financed properties. Most think that at that point, their only option is to get a hard money loan (super high rate, very short term, paying several points). The good news is that Investment Property Loans (portfolio loans) are available, and common sense approvals exist.
- Not nearly as many insane government guidelines. These rental property mortgages are not treated like normal residential mortgages which are (what some would call) over-regulated. Why? Because these homes are being purchased for business purposes, and are treated more like how commercial loans are treated (approving the scenario based on potential cash flow and equity instead of borrower employment status). Why does this matter? Well, if you are reading this, I’m going to go ahead and assume you’re aware of the extremely strict guidelines in place that prevent many good people from buying a home because of a simple technicality. Bottom line, government regulation involving home ownership has gotten tough, with investment property loans it’s not quite as bad.
- Not necessary to put half down. This is another reason its a great time to get a mortgage for rental property if you have a high number of investment properties already financed. You DON’T have to put 40-50% down to make it work. In many cases 25% down is acceptable. Obviously credit score and loan size will have an impact on required amount down. [Just ask me, I’ll let you know]
- Not necessary to have perfect credit. Let’s face it, life happens. Unforeseen tragedies happen that result in painful credit repercussions. You shouldn’t have to wait 7 years in order to be able to get back into the real estate investing world. In many cases these are doable if at least 2 years have passed since a major credit issue (bankruptcy, foreclosure, short-sale). It wouldn’t be a bad idea to be at least 660 credit before applying. If you’re not at 660 credit score yet, here is a great free tool to help yourself out when it comes to improving your credit score.
A loan app without income? Is this the wild west?
Circling back to the comment above about no income being disclosed on the loan application.
No. We’re not getting back to the old days when anyone with a pulse is approved for a mortgage. These loans are fully underwritten and evaluated for ability to repay the loan.
But the ability for the loan to be paid lies within the monthly liability (mortgage payment/taxes/insurance/association dues) in relation to the fair market rent.
So how is fair market rent evaluated?
Pretty simple really. If you’re purchasing an investment property, the appraiser will do a standard 1007 rent schedule (or something similar) to calculate fair market rent for the lender. The lender will then take a percentage off of that amount (to account for possible vacancies).
If you already own the property, and are refinancing, the current lease will be evaluated as well as a 1007 rent schedule to be completed by appraiser.
A Huge Win for Non-Warrantable Condos
Investors who have been looking to buy non-warrantable condos have been having a tough time. They usually have to buy the property cash, or get a hard money loan. With investment property loans that’s probably not going to be necessary if the association is established and the phase is complete.
A big problem with investing in condos right now is that the complex can be deemed “non-warrantable” due to a number of circumstances. [more about non-warrantable condos here]
Most of the time condos are labeled non-warrantable because the percentage of units owned for rental purposes is higher than what’s usually acceptable. This is when getting a mortgage for rental property is a great tool to have. The complex will be evaluated and a common sense decision will be made.
The complexes aren’t always approved, but it’s a great opportunity to explore if you’re and investor running into the non-warrantable condo issue.
Experience is Required
As I mentioned previously, these real estate investment loans are designed for folks who have been investing for a number of years.
Perfect for investors who are running into issues with hitting maximum number of financed properties.
Be prepared to provide legitimate evidence that you have been a real estate investor for at least 2 years. The ability to repay the loan is tied to your ability to manage the property effectively.
If you are fairly new to real estate investing, it will probably be best to get a normal conventional loan.
I invite you to reach out.
If you are looking for a solution to your investment property loan challenges I encourage you to reach out to me to see I might have the right fit for you.
You will not be redirected to some intern in a call center. You will connect with me directly. [who I am]
If for some reason I am unable to assist, I will most likely be able to point you in the right direction at the very least.