The opportunities for purchasing investment properties in the current market are unprecedented due to historically low mortgage rates and home prices. Investors purchase homes for one of two reasons. The first is to repair and then resell the property. The second is to rent out the property so they have an income stream.
In either case, buyers need to make whatever scenario they are looking to make happen work on paper before doing it for real – in other words, they have to run all the numbers. This means getting input from outside experts such as real estate agents, appraisers and contractors, all of whom can provide buyers with the information they need to make an informed decision. Investors should plan on putting 25% to 30% down on an investment property and have a minimum credit score of 720. Any late mortgage payments in the prior 12 months, or bankruptcies in the previous seven years, will make them exempt from the program.
The Federal Housing Administration (FHA) does no investment property financing, with the exception of multi-unit properties where the owner intends to occupy one of the units. This means the FHA will likely use Fannie Mae or Freddie Mac guidelines.
Investors should plan on paying a higher interest rate on any investment property mortgage. As far as assets go, lenders will be looking at six months of mortgage payments, including taxes and property insurance. This may be in the form of a checking or savings account, or a percentage of some type of retirement account such as a 401(k).