If you’re in the market to buy an investment property but are unsure what differs about the requirements compared to a regular home mortgage, you’ve come to the right place! For the most part both processes are very similar, though the requirements for an investment property are less flexible than they can be for a traditional loan.
The major difference between a traditional loan and an investment loan is that you’ll need a minimum 25% down payment towards the investment property. In some cases if you are applying for a single unit property you can get a 20% loan to value ratio (LTV), but that really depends on the bank you’re working with. The general rule of thumb for this type of loan is 25% down and none of that money can be gifted to you.
Beyond the LTV ratio needed for an investment mortgage, you cannot purchase the property through an LLC and must do so as an individual, just as you would with a traditional loan. If you intend to use rental income to qualify you must already have two years worth of experience as a landlord. If you’re able to qualify without using rental income then this requirement doesn’t apply. The rest of the loan process is basically the same as a traditional loan unless you’re looking to purchase a condominium complex.
If you’re interested in purchasing a condominium then be aware at least 51% of the property must be owner occupied and the condo association has to prove that they have enough funds on hand to cover repairs as needed for tenants. Additionally, the association must provide a statement that there are no currently pending lawsuits existing between the current owners and or the association. If these requirements cannot be met either by you or the existing owners and association then you won’t qualify for a loan to purchase the complex.
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