Rental Property

Exploring Financing Options for Buying a Rental Property

Investing in rental properties can be a lucrative venture, offering a consistent source of income and potential long-term growth. However, before diving into the world of real estate investments, it’s essential to understand the financing options available. Working with the Treadstone Mortgage team in Kalamazoo, MI investors will be in a prime position to make informed decisions about financing the next rental property. Let’s explore the financing options available.

Mortgages for investment properties have different guidelines to follow.  Essential it comes down to the difference between an owner occupied and non-owner occupied property.  Non-owner occupied properties are viewed as being higher risk in the mortgage industry and there for have stricter requirements than a mortgage for a primary residence, but there are still plenty of options.

Conventional Loan For Investors

1. 620 Minimum Credit Score
2. Minimum Down:
   • Single Family (1 Unit) 15% down
   • 2-4 Units  25% down
   • Renovation loan 20% down single family only
3. Renovation Option – This allows an investor to purchase a home, get a bid from a contractor to rehab the property, and finance the cost of that rehab project into the loan.
4. Use up to 75% of the gross rental income to qualify
5. Reserve requirements – General speaking 6 months of reserves are required, however that amount can increase if the investor owns multiple properties.  As an example if we need 6 months reserves and the house payment is $1,000 per month.  Then 1000 x 6 = $6,000.  Meaning we need $6,000 left over in the borrowers bank account when we close.  Retirement accounts can typically be used to meet this requirement.
6. 2% max seller paid closing costs

DSCR Mortgage – Debt Service Coverage Ratio

This program allows a investor to purchase a property and income qualify based solely on the rent generated on the property.  Basically the program was designed for investors that whos debt to income ratios don’t line up based on the traditional calculations of looking at tax returns and paystubs.  We simply look to see if the property is generating enough income from the rents received to cover the mortgage payment.

1. 680 Minimum credit score
2. 20% Minimum down
3. No first time buyers allowed (must own a primary residence or another investment property)
4. 2% Max seller paid closing costs
5. 3 Months Reserves

Owner-Occupied Multiunit Property

Although not your traditional investment property this can be a great way for someone to get started in the world of rental properties.  The concept here is that someone would purchase a 2-4 unity property.  Live in one unit and rent out the others.  The cool thing about buying a investment property and living in one of the units is that the guidelines are much more forgiving.

1.  FHA options available
2. 3.5% and 5% down options
3. 580 Minimum credit score
4. Renovation Options for 1 – 4 units
5. Minimal reserve requirements
6. Gifts allowed
7. 6% Max seller paid closing costs
8. Completely Legal House Hack 

Each of these different options have there advantages and disadvantages.  It’s important to understand all of the options available not only for the next purchase but also future properties.   When we consult with investors on the different options we talk about not only options for the upcoming property but we discuss what the future goals are and how to acquire multiple properties.   Call us today to get started or jump online and start the application.