Announcer: Welcome back to the FlipNerd.com REI classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level, and now let’s meet today’s expert host.
Steve: This is Steve Bighaus with Security National Mortgage, host of the REI classroom this morning. One of the things I want to talk about is a little bit of the difference when you are financing an investment property.
Announcer: This show was sponsored by Passiverental.com
Steve: You know, a lot of folks out there, they might own a primary residence, they might own a second home. There are some similarities between as far as a qualification but there are also definitely some differences when you are financing an investment property.
First thing that comes to that is the actual qualification itself. So when you finance your primary, they’re looking at your debt to income ratio. We’re going to look at the same thing, as far as your housing expense, what your installment revolving debt is. But then you’ve got that added element when you are financing an investment property and that is the income. Can I utilize the income to qualify? And the answer is yes.
So with Fannie Mae you can do one of two things: either have a lease agreement in place, or you can have, if the property is vacant at the time the appraisal is done, Fannie Mae goes one step further in allowing us to utilize the rent figure that the appraiser puts in as far as fair market rent and discount that by 25%. So I can use 75% of that to offset that income. So in theory you are really not taking on any additional debt.
Now, some lenders out their might have the two-year landlord history experience requirement. Those are just additional overlays a lender plays. Right now neither Freddie nor Fannie, and Freddie just changed their guidelines where they deleted the two-year landlord history experience requirement, but what they do require is a current lease in place. But they are not quite as aggressive as Fannie Mae in allowing you to utilize the real rental income of the property’s vacant.
Secondly, when you into rental property financing, when you buy a second home, you buy a primary gift fund for a loan. They are not a loan on an investment property. So it has to be cold hard cash, you know, verifiable cash, to utilize for your down payment and closing and cannot be a gift fund. So the investment property world is just a little bit different, it’s still viable.
A lot of customers come to me and say it’s tough to get loans now, and I say for the investors, typically the investors, their profile, they’ve got jobs, they’ve got good credit, they’ve got cash. It’s not tough to get those loans. Now, granted, is there is still a pilot documentation? Absolutely, we are going to ask questions, absolutely. But, again, it’s still viable.
I was down at San Francisco a couple of weeks ago speaking to a group of investors and that question always come up. I just pointed out to them, the people in this room, I can get every one of you a loan. That is what makes it easy, when you have those elements. So again, there is a difference between investment property and primary financing. You really need to talk to a lender that will help you walk through that, and with that said, I have not much more to say and so thank you very much.
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