It seems almost redundant. After all, isn’t every property an investment of some kind?
While that may be true, when it comes to obtaining a mortgage, the definition of an investment property, and the requirements surrounding its loan, are pretty clear.
Primary Residence vs. Investment Property
To put it simply, primary residence refers to a home occupied by its owner the majority of the year. When borrowing, the prospective owner will be expected to acknowledge this status on several loan documents. Once a home is classified as “owner occupied,” it receives a better interest rate than an investment property.
An investment property is any home that is NOT occupied by the owner. It can, however, also be a second home or vacation home that is too close in proximity to the primary residence. Properties such as these pose a bigger risk to lenders and therefore carry a higher interest rate.
Know Your Limits
Currently, Fannie Mae allows each investor to carry up to 10 loans at any one time. Taking advantage of the 10-loan limit requires a lender with the right experience.
3 Questions to Ask Your Lender-to-Be
- Do you currently work with active investors?
- How many loans can YOU offer any one lender?
- Do you personally own rental property?
Credit and Cash
Credit-qualification guidelines are NOT created equal. For loans 1 through 4, a minimum credit score of 620 is required. Loans 5 though 10 require a credit score of no less than 720.
There are also requirements when it comes to cash. In addition to the down payment, lenders require 6 months of cash reserves available per property. In other words, if you own a primary residence and are buying an investment property, the lender will require you to have 6 months of mortgage payments (principal, interest, taxes and insurance) available for both properties.
For a better understanding of what it will take to purchase an investment property, ask your lender for the estimated monthly payment. Or, use our Instant Rate Quote, available 24/7.
As with credit-qualification, down payments also have two sets of guidelines. Loans 1 through 4 for a single-family home require a 20% down payment. Loans 5 through 10 require 25%.
For loans 1 through 10 pertaining to multi-family dwellings, a 25% down payment is required. It’s important to note, however, that many lenders require 30% after loan 4.
On a side note, refinance transactions for any investment property will require a 25% down payment.
We wish you the best of luck with your home purchasing endeavors. For more information, or to find out how Sammamish Mortgage can help you, we invite you to contact us today.