There are different loan programs available depending on the type of property you are looking to buy or refinance. Qualifying standards differ between homeowner occupied homes and investment properties. Since these qualifications can change with market fluctuations, it is important to speak with a qualified mortgage professional to be aware of current standard guidelines on mortgaged properties and compare the difference between owner occupied vs. investment property loans.
Residential Investment Properties
Residential Investment loans were created to help make housing available in your community. These loans are typically for properties with four units or less. Qualifying for these loans is very similar to getting a traditional mortgage for your primary residence. But, since there’s an assumption that at least some portion of the property will be rented, the way income is determined is slightly different and will vary from lender to lender.
Much like a traditional loan, lenders will still evaluate your debt-to-income (DTI) ratio, your credit history, and your loan-to-value (LTV) ratio.
It isn’t necessary to have experience as a landlord to qualify for these loans. Most lenders will apply 70 to 80% of your assumed rental income towards your qualifying.
Lenders tend to find investment properties to be a more risky investment, so these loans will usually have a higher interest rate than your traditional home loan for a primary residence.
Owner Occupied Loans
Loans for properties that will be owner-occupied offer a lot more flexibility than investment loans. Under the right circumstances, you can qualify for an extremely low down payment or none at all. This is almost never true for an investment property. Additionally, since lenders have found primary residences to historically be at lower risk of default, interest rates can be significantly lower than they are for investment properties.
Since costs for the borrower are lower for non-investment properties, some buyers find that it is easier and cheaper to purchase a home to live in and later convert it to an investment property. By doing this, you can get the savings from a lower interest rate, save money with a smaller down payment, and can still make rental income on a property. Of course, doing this requires the buyer to move, but, given the savings, it can be very beneficial for those looking to get into the rental market who don’t have a lot of cash upfront.
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