Investment (Rental) Property Financing Question

[Bades]

Hi guys,

For those of you with some rental properties...

How do they differ from traditional mortgages? I know that they usually require a larger down payment (25%) and typically have higher interest rates. Are closing costs, taxes and insurances, higher?

Second question once you do buy your property how is it perceived by banks regarding future borrowing? I've heard a bank needs to see 2 years of rental incomes before it will let you borrow money again, even for a primary residence. This true?

Thanks!

[rxtrom]

AS far as I know the closing costs will be the same as a primary residence but your escrow might be higher due to higher insurance rate. The liability will be higher on a rental but you will not be insuring personal property.

Your interest rate will be a little higher - you are correct. The down payment should be still at 20% but you will see a rate decrease if you can come up with 25% - this is the same as a primary.

As far as an additional mortgage for an investment property I will let someone else chime in - the banks have tightened up so I am not sure about this one.

[DRILLINDK]

I purchased my first home and rental property this last summer. I was able to get a FHA approved mortgage, but had to jump through SOOOO many hoops to do so. The previous poster is correct. Banks and the Feds have really clamped down on the whole process. I have exceptional income and credit, and at the time had no other debts. They still gave me the run around.

Depending on your situation, I would imagine that most banks would want at least 20-25% down payment. I know that with an FHA loan, they did consider that it was a rental. One of the problems we encountered was the rental income was too (below market) low vs. my estimated mortgage payment. Had to tweak numbers to get through the process.

[Bades]

Just talked with abanker on how an investment property loan taken out today would affect my chances on getting a primary residence loan a year from now. She said typically the bank wants to see reserves from anywhere of 2-6 months, so that you can cover both mortgages if need be.

[Ima saver]

Can I ask why do you want a rental property? I bought 3 of them in one year and it was a terrible decision for us. Then renters tore them up, didn't pay the rent and when I sold them, I lost a lot of money on all 3 of them.

[Bades]

Can I ask why do you want a rental property? I bought 3 of them in one year and it was a terrible decision for us. Then renters tore them up, didn't pay the rent and when I sold them, I lost a lot of money on all 3 of them.

Just because you made a terrible decision and had bad experiences doesn't mean I will. Perhaps being a landlord isn't your thing. Rental properties have been very good to a lot of people. My uncle owns some townhouses so he's just a phone call away if crap hits the fan and he holds a wealth of knowledge.

I can get this place for a steal at the moment with a super low mortgage payment. The tenants there have been long term (3+ years) and have been good tenants (mostly small families). Of course a lot of things can go wrong, and it can be a pain in the a**, but I wouldn't be taking this on if I didn't already know this.

I'm doing all the right due-diligence to prepare myself here and believe it to be a good investment and even better experience.

[riverwed070707]

Mortgage rates will be way higher. Insurance will be higher even though you're covering less. You will have a hard time finding a bank who will finance a rental purchase unless you have significant cash reserves. We did not; however, have a hard time purchasing a primary residence after our rental aside from having to prove we could cover both mortgages on our current income.

[Bades]

I have already been talking with banks and I won't have an issue getting the loan for the Investment Property. I was given a ball park of 3.875% for a 15 year mortgage. The loan is so small (55k) that mortgage payment will be very small compared to the income from the rent.

We did not; however, have a hard time purchasing a primary residence after our rental aside from having to prove we could cover both mortgages on our current income.

That's exactly what the banker told me, this shouldn't be a problem for me to have the reserves to cover both mortgages for 5 months.

[henrikbeech]

Investment (Rental) Property Financing Question

A real estate attorney and a tax professional are really needed to help you decide but basically, I would suggest that you and your wife buy your own home, and let her brother buy his when he can legally do so. to me this amounts to co-signing for a mortgage which I never recommend.