The default rates for borrowers on investment property loans is higher than home mortgages. Because of this, lenders require higher down payments and rely on strict underwriting for Arizona Investment property financing. This means that, if you’re purchasing an investment property, be prepared to put down at least 20 percent of the purchase price. There are, however, exceptions and percentage rates are often based on the type of property. For instance, anywhere from 25 to 40 percent may be required for multi-unit properties.
The advantage of a commercial loan is that the borrower is not required to carry mortgage insurance. Conventional loan programs allow 80% LTV and, for investment properties, this is a best-case scenario. You will also want to explore crowdfunding websites for real estate. While these tend to be more expensive, they are often more flexible than conventional loans. Before entering into an investment property, you should have at least three months payments as reserves.
Both interest rates and upfront lender fees are higher than conventional mortgage lenders. Lenders advertise that their rates will be 0.25% to 0.5% higher than their homeowner loans. You should expect 1 to 3% points higher than owner occupied loan rates. If the lender charges 4% interest for their homeowner loans, you can guestimate an interest rate of 5%-7% for investor loans.
In addition to the interest rates, you will be charged up front points for a mortgage loan. One-point equals one percent of the total amount of the loan. You can see how these fees add up quickly. Make sure you have reviewed your credit report and credit score. If your credit score is below 740, you will have higher interest rates, higher lender fees, and lower LTVs for your investment property. If you have a mid-level score, then a conventional loan may not be an option. However, the collectable (property) is reviewed more than you as a borrower. As we mentioned earlier, homeowners are far less likely to default than investors. Lenders have built in loan programs with lower LTVs as caution to default.
The Effects of Multiple Mortgages on Investment Property Financing
If you are carrying multiple mortgages on your credit report, your options are dwindling. Once you hit the threshold of four mortgages on your credit report, you may be untouchable by conventional lenders. Fannie May has established a program to help investors that allows 5 to 10 mortgages. Fannie May’s program requires 6 months payments in liquid reserves at the time of settlement. The program requires 30% down for 2 to 4 units and 25% down for single family homes. You are persona non-grata if there are any foreclosures or bankruptcies or late mortgage payments. You will need a credit score no less than 720+ if you have 6 or more mortgages.
If you have 10 or more properties, you have slim options. A good starting place is community banks. Blanket loans issued by commercial lenders are secured against multiple properties. Be sure to ask what happens if you want to sell a property in the package.
Hard money lenders are an option that many investors turn to.
Level 4 Funding solves Arizona investment property financing issues while offering the lowest possible rate term. Real estate investing has made millions of individuals millionaires. Don’t hesitate because you are unsure of your investment worthiness. Call us today for a no-obligation quote.
Level 4 Funding LLC
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Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.