Monthly Archives: February 2007

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Solving the financing puzzle for your investment properties can be quite a hurtle to say the least, it helps to work with a loan officer who knows the common snags and has outlets and resources to solve problems and save you thousands. Be sure to ask your loan officer how much experience they have in financing non owner occupied properties.

Common snags include:

Seasoning:

Seasoning is the time period for the previous 12 months prior to your transaction and specifically deals with any other transactions on the subject property. If the property you have purchased 2 months ago for 150,000 and rehabbed is now appraising for 225,000, seasoning requirements say that if the house has sold or been listed 12 months prior to your refinance or sale transaction you must use the lower of the values, either the appraisal or the previous sales price. This can really throw you a curve ball if you are trying to sell the house and your buyers’ lender can’t get them a loan on it because of the seasoning issue. It can also be tough if you are trying to refinance the property to hold it as a long term rental property. The solution is to use a lender that does not have a seasoning requirement or buy a house that was never listed.

Higher investment rates:

Rates are always higher on investment property but there are ways to soften the blow. Many lenders do not have steep rate hits if your loan to value (LTV) is below 75%. “What if I don’t have 25% to put down” you may ask, just put down 10% and then do a second mortgage for the remaining 15%. This is known as a 75/15 combo; both loans can be 30 yr fixed rates with no balloons. Your second mortgage rate will be higher but the bulk of your loan will be at a much lower rate saving you thousands of dollars over the years. The other way to save money on interest rates is to buy down your rate but be sure to do the math; your break even point may be more than five years out so you want to make sure you are holding the property long term if you go this route.

No landlord history:

This often bites the heels of a new real-estate investor’s debt to income ratio. The two houses you have bought this year are both rented and cash flowing but when you are buying your third house, your loan officer tells you that your debt to income ratio is too high because of the debt of the two new mortgages. This of course makes no sense because you have them both paid for by your renters. When you haven’t had a landlord history for 2 years you cannot use the rental income to off set the debt of the mortgages. The solution to this problem is to do a reduced documentation loan which would be stated income or no income (no ratio) documentation. You pay a higher interest rate for these but hey, it’s a write off!