Real Estate has been the path to great riches for many of the world’s wealthiest individuals.  It has also been one of the principal historical drivers of household wealth creation in the U.S.  as families have purchased, paid off and then sold their homes.  Purchasing an investment property with the purpose of renting can be a fantastic way to improve your personal wealth.  The lure of residual income & appreciation are great motivators.  As time goes by, and you pay down any mortgages associated with your investment real estate portfolio the residual income generated compounds & property values tend to increase over time.  To become a successful real estate investor though, it's best to be well-versed in the world of purchasing Investment Property.  Preferably before you jump in and invest a lot of your hard-earned money.

The definition of an Investment Property is a home that is owned for business purposes- such as a rental property.

Lenders underwrite Investment Properties differently than primary residences or second homes.  Investment properties are considered the highest risk of the three occupancy categories.  Loan products, down payment requirements, interest rates, and underwriting guidelines can vary when compared to similar transactions on a primary residence or a second home.  

It is a good idea to communicate with your Mortgage Banker prior to making an offer when purchasing an investment property to understand the loan program requirements, financial details ability of your property to cash-flow.  

Below are some examples of how Conventional Investment Property Loans differ from loans against a borrower’s primary residence.

• FHA & VA loan programs are ineligible for the purchase of an Investment Property.
• The minimum down payment for the purchase of an Investment Property with a conventional loan is 15%.
• Debt-To-Income ratios for investment properties are more restrictive and usually cap out at 43% or less.  
• The cost of mortgage insurance is higher if you make less than a 20% down payment.
• Lenders will require additional post-closing reserves.

Select Home Lending Also Offers a Reduced Documentation Portfolio Loan Program for Experienced Real Estate Investors. Below are some details of our Portfolio Investor Loan Program:

• DSCR
• No Ratio
• LTVs up to 75%-85%
• In some cases the LTV may be calculated off of the higher of the Purchase Price or Appraised Value.

Contact a Select Home Lending Broker today for detailed information on our Portfolio Investor Loan Program.

Am I Ready to Buy An Investment Property?

Becoming a real estate investor and purchasing an investment property is significant financial decision not to be taken lightly. How do you know if your finances are ready to support a move into the world of real estate investment? Below are some considerations to take into account when deciding whether the time is right for you to purchase an Investment Property.