Purchasing an investment property, like a single-family home, condominium, or multi-unit property, can have multiple benefits. They’re a great way to make money through rental income, have tax advantages, and may appreciate over time. So, what’s the best way to purchase one? There are several loan products available to help investors acquire investment properties. Here are a few of them:
- DSCR loan. A Debt Service Coverage Ratio (DSCR) loan is a non-QM loan that looks at the net income from the investment property to determine the ability to repay the loan. A lender won’t require personal income documentation to qualify. The DSCR is calculated by taking the property’s net operating income and dividing it by the total debts and expenses incurred (including the principal and interest payments on a loan). Most lenders need the DSCR to be at 1.25. Down payments can be as low as 20% with the right DSCR and credit score.
- Non-Warrantable Condo loan. Suppose you want to purchase a condominium as your real estate investment, but the condo is deemed non-warrantable because it doesn’t meet conventional loan requirements. A condominium may be flagged as non-warrantable for any number of reasons - the project has yet to be completed, too many units are occupied by non-owners, one person or entity owns more than 10% of the total number of units, or the developer has not turned over control of the HOA to the owners. Whatever the reason, some lenders will still provide loans for non-warrantable condos as long as you meet the minimum credit score standards, have a debt-to-income ratio of no more than 45%, and verifiable income.
- Jumbo loan. When the loan amount you need to purchase your investment property exceeds the current conforming limit set by Fannie Mae (FNMA) and Freddie Mac (FHLMC), you may consider a jumbo loan. Jumbo loans usually require more rigorous credit requirements from the lender, such as a high credit score, a low debt-to-income ratio, and down payments of at least 20%.
- Portfolio loan. A portfolio loan is a loan that a lender originates and keeps instead of selling on the secondary market. Requirements for portfolio loans vary from lender to lender. The lender is assuming the risk, so they set the qualifications. Generally, if a borrower can show they can pay back the loan, make a down payment, and have a FICO score and debt-to-income ratio above a certain threshold, they may qualify for a portfolio loan.
Getting the right loan for an investment property loan can depend on your current financial situation, how much you need to borrow, and the type of property you are purchasing. Make sure you can achieve your short and long-term goals. If you have questions about securing an investment property loan, talk to the experts at NASB at 855-921-4921, or click here for more information.