Investment Property Loans

Buying and financing investment property has become more difficult in recent days due to the economic downturn.

Typically, you will need excellent credit history, 20% down, and several month’s worth of reserves.

Due to all the changes in the marketplace it would be probably best if we discussed your situation to see if you will qualify and so that you have current and accurate information. Please call me at 612-636-6380 or e-mail me @ jason@mnloanstore.com to discuss your investment property plans.

There is a program currently available that will lend you more than you pay for the property!! Here is a short summary of how it works. First, let’s assume that you are buying a house for $200,000 that is in need of $20,000 worth of repairs. Once the house is fixed up, you know that you can sell the house for $250,000. You put a contract out on the house and it gets accepted. You will take your purchase agreement and a sworn construction statement on the cost of the repairs that you plan to make to the property and give it to the mortgage banker.

The mortgage banker gives this information to the appraiser and he appraises the property using the repair information to do an appraisal based on “plans and specs” for the repaired home. He compares it to other property in the area and he finds that you indeed were correct and give you an “as-completed value” of $250,000. Now, the mortgage banker will take the appraisal and the sworn construction statement and give a copy to the bank. After review from the bank, they will give you a loan for 90% of the future value of the house!! So, the loan then gets set up for $225,000. You will need to bring in 5% down on the as-is purchase price. In this case that is $10,000, but you will now have a “line-of-credit” on this house for $35,000 to draw from for repairs (or to refund your down payment). The maximum initial draw is 50% of the amount of the line of credit, in this case $17,500. To draw any additional funds, you will need to have the property inspected to make sure that the repairs are being completed.

One of the traditional problems with “breaking into” real estate investing has been not having the required “two years of experience” that most “agency” investment property loans require. However, there is a bank that does allow first time investors to buy a property. The basic requirements are as follows:

One of the problems mentioned earlier was the “10 property limit” that both Fannie Mae and Freddie Mac have. In addition to that limit, most banks are going to have a limit to the number of properties that they will finance. Usually, banks will limit their number of loans to 4 per person and a total of no more than 15 properties financed. There is a bank that had no restriction of the number of properties financed and will do loans based on the “total amount owed” to the bank. (Typically, they won’t have too much of a problem going up to $1,000,000 and you can probably get up to 2 or 3 million after you have “proven” yourself.

There are a wide variety of interest only loans available for the home owner and investor. Products range from Interest Only Fixed Rate Mortgages to Interest Only Adjustable Rate Mortgages with 1/1, 2/1, 3/1, 5/1, 7/1, and 10/1 terms. An interest only loan is a natural choice for someone who is looking to maximize their monthly cash flow. This loan is most commonly used by short term capital appreciation investors and cash flow investors. The negative here is you are not paying off any principal, however; these investors are not seeking to pay off the loan, just control the property.