From a financing perspective, an investment property is similar to a property you would purchase to live in, although with different guidelines. So what exactly is an investment property?
For our purposes here, it is a property that has 1-4 units. Anything larger would fall into what would be considered commercial financing. Being that FHA, VA and other programs only offer financing for properties where owners plan to live, your financing choices will, by and large, be limited to conventional financing, which means a Fannie Mae or Freddie Mac program. Along these lines, if you do plan on buying a multi-unit property and plan on living in one of the units, only then can you use primary residence financing.
As far as a down payment on an investment property, you can expect it to be 20% of the purchase price. Lenders want to know that you have a vested interest in this transaction and want to make it work.
With regard to credit, it needs to be nothing less than stellar. This means high credit scores and, more importantly, no recent major blemishes, such as bankruptcies or foreclosures.
As far as asset reserves go, you can expect to need up to six months of your monthly expenses of principal and interest, property taxes, and homeowners insurance.
In some cases, you can use the income from the rental property itself as part of your income. Keep two things in mind, though. One is that the allowable income from the property will be reduced by 25% for what is called an occupancy factor. The other thing is that an appraiser will determine the fair market rent that you can use as income.
I am here to answer all of your questions and provide financial guidance with regard to your next rental property purchase. Please give me a call.