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Rental home loans
LENDING LIMITS
Fannie Mae provides an investor option to take at most 10 loans at once. To those of you, who are new, this is a good limit to start provided you are working with the right lender. You need to strategize all the loans with a long and short-term perspective in order to better manage finances. Do not opt to finance an investment property if you cannot prioritize the development and maintenance of the rental properties.
INVESTOR-FRIENDLY LENDERS
Always work with lenders who have a track of being friendly to the investors. This is in your long term interest. When purchasing rental property, work with brokers with experience in real estate investing. Avoid mortgage brokers for residential properties since they do not mostly know how to build a profitable real estate portfolio.
Work with lenders directly if possible for better deals on rental home loans.This is because brokers have a limited financial profile whereas lenders represent the source of funds that are your loans. Working with brokers also means the underwriters can alter the lending terms especially during escrow. Working in close contact with lenders gives your deals more legitimacy and credibility.
CREDIT REQUIREMENTS
It goes unsaid that all the lenders demand a good credit score. The more the number of loans, the higher the score they seek. But maintain an average credit score between 650 to 710 to make the most of the opportunities.
CASH RESERVES
Most of the investors will want you to have at least 6 months of cash reserves before buying a rental property. Some lenders measure this per property which means that cash reserves have to be maintained for each of the rental property in your portfolio. These future mortgage payments for the rental home loans are a guarantee of your credibility. Work with lenders six months in advance to know how much to save as estimated monthly payment.
DOWN PAYMENT
Guidelines for down payments can be multiple. As per the number of rental home loans you are taking, here is a rough idea for most of the lenders:
- Multi family homes – 25% down payment
- Single family (up to 5 loans) – 20%
- Single Family (more than 5 loans) – 25%
W2 INCOME
Most lenders require that you submit proof of stable W-2 income for the last 2 years. A proof of your stable job or proven experience in this industry helps secure the best deals. The underwriter determines the annual income and calculates your average income for the last two years. In case of the self-employed investors, you have to submit adequate income tax returns, profit and loss statements which are verified by a certified CA.
Rental home loans are not everybody's piece of cake. The right deals have to be scourged. Implement these tips in the right way to grab the best deals and start on a journey of commercial real estate loan success.