Investment property loans are used for the purchase of second homes and investment properties, including one- to four-unit residential properties and vacation properties. An investment property includes any residence from which you earn rental income or you purchase to flip and sell for a profit.
When applying for an investment loan, you can borrow more compared to a conventional loan.
One of the benefits of applying for an investment loan is that you do not have to live on the premises of the property you're applying for.
You may also be able to use potential rental income to qualify for a loan. Lenders will credit $0.75 on the dollar using the current market rate when factoring in rental income as part of your application.
You’ll need a 15 percent -20 percent down payment to buy a single-family investment property, depending on your credit score. To purchase a multifamily property, you’ll have to put down percent. If you plan to live in the home, the down payment requirements may be lower.
A high credit score combined with six months of cash reserves and a low debt-to-income (DTI) ratio are keys to getting approved for investment property financing. You’ll need a minimum of 680 if you plan to put down 15 percent - 20 percent. If you can put down 25 or more, the minimum score is 640, though the reserve requirements may be higher.
A six-month cash reserve is crucial for making repairs and paying for rental property expenses that inevitably pop up. Owning a rental property means you’re responsible for maintenance, repair and property holding costs, so a cash reserve will be crucial for approval.
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