Investment Property Guidelines and Loan Types
Definition of an Investment Property: This is a property that you do not live in. This could be a residential rental property or commercial property or land. If you live in the property, it becomes a Qualified mortgage or a QM loan which has many rules associated with it.
The rules are different for the different you are trying to go with an FNMA or FHLMC loan (Agency Loans).
For Agency Loans you will see the best interest rates if you are willing to follow these rules. With Agency Loans for Investment property Interest rates will be about 1 percent higher than Owner-occupied QM loans. The following rules must be followed to be considered for an Agency Investment loan.
- FICO scores must be greater than 680.
- You must put a minimum of 20% of the sale price as a down payment.
- You must provide income documentation and include 2 years of Federal Tax Returns
- You have to provide Bank Statement to show that you have the money for the down payment and the closing costs and reserves (usually 6 months of the principal interest and taxes and insurance).
- Agency loans will make an investor provide all the information on all their other rental properties.
- Agency Loans will only loan up to 10 loans to any one investor, so if you have more than 10 properties you will need to look to alternatives as seen below.
Agency Loans are fully qualifying loans and if you can’t qualify for these guidelines you would move to the next levels which come with higher interest rates and fees.
Alternatives to Agency loans (Hedge Funds):
The next level of financing for investment property will be from Hedge Funds and these will provide for a little less documentation and a bit easier to obtain. These types of loans will come with higher interest rates and fees than Agency loans but will be easier to qualify for. The money here comes from wall street hedge fund companies that put capital out that is a bit higher risk to their investors thus the returns are higher for the investors.
Requirements to get a hedge fund Investment Property Loans:
- Can have FICO scores as low as 580 but the higher your score is the better the interest rates are.
- The down payment requirements will be higher starting with 20% and moving higher the worse the credit score is or how rough the property is.
- Documentation will be lighter and will vary from company to company.
- Some Hedge fund companies will require 6 months' reserves. It will depend on the property and the borrower.
- Documentation requirements will vary from Hedge fund to Hedge fund but know the less you have to provide the higher the interest rates and fees will be.
- Hedge Funds will generally not care how many properties an individual owns.
There are many different Hedge Funds out there and it is our job to find the best one to fit your needs. Don’t try and navigate this by yourself as you will probably get taken advantage of. MAE Capital Mortgage has many relationships set up with some very aggressive Hedge Funds, so let our Mortgage Professional help navigate you through this confusing maze. In most cases, Hedge Funds will only deal with experienced Mortgage Brokers like MAE Capital Mortgage.
Private Money Lending.
Private Money loans are loans from private individuals. These types of loans are the riskiest so you will have high-interest rates and fees. These loans are for those that have or want to have investment property but don’t meet the guidelines for the above loan types.
Requirements for a Private Money Loan:
- These loans are only for investors, no owner-occupied loans are done with Private Money. No FICO score requirements for Private Money Loans.
- The Down payment requirements are going to be higher generally 25%-40% and 50% for land.
- Private Money Loans don’t require much in the way of documentation the most important part of a Private or Hard Money loan is the equity position for the lender, so the value of the property is the most important part of a Private Money Loan.
- So long as you have the down payment, or the equity there generally is no reserve requirements.
- Private Money does not care about how many properties you might own either.
Private Money Loans are a great vehicle to get short-term financing (1-3 years) to obtain a property or refinance the property. Private money has been used to get people out of foreclosure to save properties. Private money is used for fix and flip transactions as most private money lenders will look at the after-repair value of a property and they lend based on that.
Call an MAE Capital Mortgage Loan Officer Today for more help