With some small improvements in the economy, many investors are starting to consider jumping into the residential real estate market again. And low prices make it a good time to do so.
According to figures from the National Association of Realtors, most
metropolitan areas within the U.S. reported lower median sale prices on existing
single-family homes during the second quarter of 2009 compared to the second
quarter of 2008. Sales in Florida and California appeared to post some of the
highest price drops, while prices on homes in the South, Midwest and Texas were
But while prices are good, the days of quick-and-easy financing are over, and
the tightened credit market can make it tough to secure loans for investment properties. However, there is some good
news: A little creativity and preparation can bring loans within reach of many
real estate investors.
"Investors are more scrutinized than they ever were, and financing is more
difficult, but not impossible," says Ben Spofford, an Ohio real estate investor
and president of RealtyRTO.com.
If you're ready to seek out financing for your residential investment property, these five tips can improve
your chances of success.
Have a sizable down payment
Mortgage insurance won't cover investment
properties, so you need at least 20 percent down to secure traditional financing
for them. If you can amass 25 percent, you may qualify for an even better
interest rate, says Todd Huettner, a mortgage broker and president of Huettner
Capital in Denver.
If you don't have the down payment, you can try to obtain a second mortgage
on the property, but it's likely to be an uphill battle.
"I don't know of any lenders doing second loans on investment residential
right now," Huettner says. Jumbo loans, which are used for financing more than
$417,000, are also a rarity.
Be a "strong borrower"
Although many factors -- among them the
loan-to-value ratio and the policies of the lender you're dealing with -- can
influence the terms of a loan on an investment property, investors should check
their credit score before attempting a deal. It will have the greatest impact on
a loan's terms.
"Below (a score of) 740, it can start to cost you additional money for the
same interest rate. Below 740, you will have to pay a fee to have the interest
rate stay the same. That can range from one-quarter of a point to two points to
keep the same rate," Huettner says.
The alternative to paying points if you score is below 740, obviously, is to
pay a higher interest rate.
Always do your own due diligence.
- Horsley's Real Estate, LLC
- Horsley's Property Management is a Real Estate Investment Company located in Maryland, that provides real estate services, including but not limited to assisting homeowners with finding tenants for their vacant units, assisting individuals with finding a rental unit, professional property management services, some education along with a host of other services. We give our exclusive attention to each individual while focusing on a plan that could help solve your problem. We do not offer legal advice. Please contact a attorney. Here at Horsley’s Real Estate, LLC we work as a team to ensure we get the best possible solution.