Interested in Investing? | Rental Property
Rates continue to be historically low. In fact, as of September 2021, they’re lower today than they were this time last year. (See today’s rates here). The question is, what do you do when rates are low? Ever since rates dropped, the focus has been on refinancing, upgrading to the next home, and vacation homes. Although for some, this is the perfect time to achieve the goal of owning a residential rental property. Here’s what you need to know.
Rental Property vs. Owner-Occupied Mortgages
Contrary to popular belief, qualifying for a non-owner-occupied mortgage is not all that different from qualifying for a “regular” one. You don’t have to be a mogul or an expert to get started. But, as with any program, we strongly suggest that you talk to a mortgage banker (before falling down a dark internet rabbit hole that leaves you discouraged and confused). There are just two major differences, but first, let’s start with things that are the same.
Things that are the Same
- Income Calculation – Of the income that will come from the rental property, generally 75% can be used. Other than that, you will need your standard two years of W2s and tax returns.
- Debt-to-Income – The absolute maximum is 50%. But because qualifying with this high of a DTI requires compensating factors, we aim for a DTI of 43%.
Things that are Different
- Down Payment – Your credit score will determine the minimum down payment. In general, a credit score less than 720 requires a 30% down payment. Above 720, you will need to put 25% down.
- Loan Program – Almost every loan program is applicable to the purchase of a multi-unit property in which the borrower occupies one of the units. Non-occupied loans, however, are in a different tier. Essentially, any affordable housing programs, such as HomeReady, are not applicable.
The Full Run-Down
Now you’re ready to start the conversation about buying rental property! Whether you are looking for a pre-approval or would just like to brainstorm, let’s talk.