|Multiple financed properties can be pricey
Real estate investors get targeted most by multiple finance property restrictions the majority of mortgage lenders enforce. To set the record straight, a multiple-financed property situation is when there is more than four financed residential properties by anyone borrower/consumer.
Multiple finance properties include every other residential property with debt beyond the borrower’s primary residence. Do you have less than four properties? You won’t be considered as much of a risk as an individual who has more, but you’ll still pay the price financing an income property.
Multiple mortgage tips
As with any mortgage loan these days, the lender is going to be most critical of your personal income tax returns for the last two years, particularly the Schedule E section of each tax return.
The Schedule E identifies each rental property as well as other key factors, i.e. gross rents, repairs, taxes, interest and depreciation. These are the items lenders look at when determining net income for qualifying. *Note lenders will use net income after expenses.
Other factors to pay attention to:
• Find a lender who has the ability to allow for four or more financed properties. Some lenders don’t offer the program at all, while others are limited to four. Some can even go as high as 10.
• Be informed that this loan will be pricier because of risk-based pricing. This increased cost will come in the form of a higher interest rate or closing costs or a combination of the two. This is because the loan is being sold to Fannie Mae or Freddie Mac, and one of these two entities will end up bearing all of the risk of possible default-they charge for that risk.
• This will be a document driven decision, so be prepared to provide executed lease agreements for each rental property.
• Your credit score will need to be at least 700, with no foreclosures in the last seven years.
• More emphasis will be placed on debt ratio in the lending credit decision, with a maximum being at 45 percent.
• Twenty percent equity or more will be required in the subject property when buying property. When refinancing property, it can be 80 percent debt serviced unless eligible for Harp 2 Refinance.
Four or more houses, including single families, condos, pods or 1-4 multi-unit all apply here. Each with mortgage debt will always create a higher risk loan with a lender originating the new loan (more liabilities). In a default situation, the investor is more likely to walk away from an investment house than they are on a primary residence house.
The risk is augmented twofold for each indebted property.
The best way to reduce the costs associated with multiple lent investment properties is to ask a lender if there is an additional cost premium for program eligibility.
Some lenders charge more specifically for this reason, while others do not. Each lender will charge a premium for the fact that property is non-owner occupied. The key is to work with a mortgage lender who has experience in qualifying investors who own multiple properties.
Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.