How to Finance Investment Property

There are basically two ways to qualify for Investment Property: one way is that the borrower has a proven track record at managing rentals for over two years. If you have two or more years in dealing with investment property, lenders will allow up to 75 percent of the rental income to be used as a qualifying aspect.  The proof needed to show the underwriter that the borrower is a successful landlord will be the records of the last two years of tax returns, which included the Schedule E section.

The second way is if you are a first time borrower, so if the borrower has less than a 2 year history, it most likely they will not be able to use the rental income from the proposed purchase. The first time borrower of Investment Property does have an allies, the FHA has great incentives for first time buyers to get into the market and investing in 2 to 4 units homes. But, the buyer needs to occupy one of the units and the mortgage will be an ‘owner occupied’ transaction*. A 3% down payment is required and the monthly mortgage insurance will have to be paid upfront. Another way for first time borrower to get financed for Investment Property is to buy a second home, most times a second home will be treated as investment property, but it really is up to the underwriter to decide. Basically, if the home is 50 miles or closer to the borrowers first residence, it will be very tough to get it qualified as an Investment Property. The first time Investment Property borrower may also check to see what programs Fannie Mae may have.

*Getting a mortgage for a non-owner occupied property, is much different than buying one that will be resided in, for instance, qualifying is much tougher and the interest rate on the mortgage is higher because it is a higher risk for the lender.