What Property Investors Should Know Before They Buy

With all of opportunities in the current market to purchase undervalued properties, people looking to get into the world of property investing might want to explore their options. But there are a few things to keep in mind.

Investors looking to finance an investment property must put down 25% to 30% of the purchase price and have a credit score of 720 or higher, with no history of foreclosure or bankruptcy in the last seven years.

Mortgage rates on investment properties are also higher than they are on properties in which owners intend to live. Conventional loan programs are the programs of choice for investors, as the Federal Housing Administration typically lends only on primary residences. Additionally, rental income must be documented in the form of a signed lease. Any prior rental income from other properties must go back at least two years and be supported by signed tax returns. Rental income is typically calculated at 75% of the amount on the rental lease, as lenders allow for what is called an occupancy rate, meaning there will be times when the property will be without tenants.

Asset reserves on investment properties are six months of principal, interest, taxes and insurance for each rental property owned.

If you purchased a multifamily property, though, and live in one of the units, you would be buying it as a primary residence versus an investment property. Anything with more than four units would require a commercial loan.