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The market has never been better to find an investment property

 

The huge drop in home values has opened the door for investors to scoop up properties at bargain prices, but they are finding the home financing options to be very limited.

The mortgage industry has always treated investment properties different than primary residences or second homes. The risk involved with an investment property has translated into higher rates, or fees and a larger required down payment. The huge drop in home values has created a great buying opportunity for millions of new investors looking to purchase rental homes. The market for financing investment properties has changed radically. If you are a borrower with a credit score under 680 and in some cases 720 you should expect to provide a twenty percent down payment on the purchase. If your scores are above a 720 you may be able to qualify for financing up to 85 to 90 % of the homes sales price. When  you are buying an investment property, similar to a traditional mortgage your down payment is calculate off of the sales price, not the appraised value, unless the appraisal is lower than the sales price. Therefore, if the home appraises higher than the sales price, you benefit by having acquired a home below market, but your mortgage down payment requirement will still be based on the sales price.

Most lenders will require you to have a minimum of two months of reserves to cover the (PITI) principal, interest, taxes and insurance and in some cases as much as six months of reserves in a liquid account (checking/savings) account. If you are buying a home that is in need of repairs, it is highly unlikely your lender will approve this if the repairs are over two percent of the homes value. If you are buying a distressed property (foreclosure) that needs work, you should be prepared to pay cash for the home. Most lenders are going to limit your total number of mortgages to a maximum of four and will require you to fully document your income. If you are contemplating buying an investment property, your first step should be to apply for a loan approval that includes having your credit and income verified to ensure you can qualify without surprises.

7-31-2008 ? LoanNetwork.com

 

 

 

 

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