Many people consider owning a primary residence a great achievement, there are folks out there who want to take the next step and own an investment property in San Antonio as well as other areas of the country.
If you’re a novice, it’s likely you have questions. If you’ve done it before, it doesn’t hurt to review some investment property basics and improve your property-owner skills.
Below, we address some frequently asked questions about investment properties with regards to San Antonio property management. If you still have questions please ask Pyramis Company, and we’ll be happy to answer for you:
What loan-to-value (LTV), credit score, and income is required?
- LTV – Typically, for a 1-unit, a 20% down payment is required (an LTV of 80%). For a 2-4 unit, a 25% down payment is required for an LTV of 75 percent.
- Credit Score – The minimum credit score needed is at least a 600 plus.
- Income – The required income varies depending on the amount of the house payment and other debt. The total debt-to-income ratio (including the house payment) generally cannot exceed 45%.
Must have two years of landlord experience? What if this is my first time?
Freddie Mac and Fannie Mae differ on this rule. Freddie requires a borrower buying an investment property to show two years of landlord experience, through tax returns, in order to count projected rent as income. Fannie Mae says it’s still possible to buy an investment property and use a portion of income to qualify without having a two-year history.
Can I buy with partners that I am not related to? Are there a maximum number of partners allowed?
Yes, you can buy with partners who aren’t your relatives. Many lenders place a cap of four borrowers on a loan application, but there is no limit to the number of people on the title.
Can I buy in an LLC?
No, the general rule is that individuals, not LLCs or other business structures may purchase homes.
Are gift funds allowed?
No gifted funds are allowed. The minimum 20-25% down payment for an investment property must be 100% from the borrower’s own money.
How much is needed in reserves?
While some lenders require investors to show four months worth of principal, interest, taxes, insurance and homeowners association dues, some lenders require more. In many cases, if a borrower has more than 5 financed properties, a lender may require 6 months of reserve on every property owned.
Are the requirements different if I want to buy a condominium?
There are some added hurdles in the loan process if you’re considering a condominium. First, 51% of the complex needs to be either owner-occupied or a second home, since the agencies will not allow you to buy a share of a complex that is solely for investment. Next, the condominium owners association must prove that it’s in good financial standing or that it has enough in reserves if repairs are needed. In addition, a statement from the condo association is required to show no lawsuits exist among current owners and/or the association.
How is the rental income counted?
For new investment property purchases, income will be calculated based on the lesser of the rental income stated on the lease agreement or the appraiser’s opinion of what can be expected for a specific market. Once that’s established, the lender will reduce that amount by another 25% to determine qualifying income. This provides the lender with a conservative amount that factors in potential vacancy periods.
What mortgage rates do I qualify for?
Keep in mind each mortgage lender may massage their qualifying standards so be sure to ask about their guidelines. Financing rates for investment properties are typically higher than that of primary residences and second homes. Both Fannie and Freddie have adjustments that could affect your principal and interest payments depending on your loan amount and other factors.
We hope this info helps investors wishing to take advantage of the great opportunities and deals available in today’s real estate market. Still have questions? Leave us a comment and we’ll be in touch! Your San Antonio property management company is here to assist you.