Three Considerations for Investment Property Mortgages

By Homesmsp @HomesMSP

When mention of buying a second home comes up, as Minnesotans, our first thought is typically of a lake home, a cabin in the woods, somewhere up north. And there are several benefits to owning this type of vacation property: more lenient guidelines to purchase, more relaxed down payment requirements, and better interest rates.

In addition to a vacation home, there are many reasons to purchase real estate beyond your primary residence—as an investment, to create extra income, to renovate and flip. Unlike purchasing a vacation home, securing a mortgage for income property is a bit trickier. According to realestate.com, these are the three areas where criteria is more stringent:

Down Payment

When purchasing investment property, lenders typically require a larger down payment than for a first home or primary residence. The amount varies depending on the lending company you’re dealing with, but expect a down payment of between 25 and 30 percent of the purchase price.

Credit Score

While first-time home buyers can get secure a first mortgage with a credit score in the mid-650s (perhaps lower, with newly-clarified Fannie Mae guidelines), second homes necessitate a higher credit score. Here again, the numbers vary, but the general range is in the range of 725 and 750.

Debt-to-Income Ratio

Not surprisingly, to acquire more debt, lenders require a better debt-to-income ratio from borrowers, ideally 35 percent or lower of pre-tax income. To calculate this number, divide your total debt by your gross income. If the number is higher than 35 percent, work on paying down debt, use cash to make purchases, or find a way to increase income.

Take these factors into account if you’re thinking about purchasing investment property, and contact a trusted lender to learn more about the specific numbers and whether you qualify. 

Angela Anderson, Realtor, Results Support Services: EMAIL — BIO

Licensed Associate Working with Sharlene Hensrud of RE/MAX Results, and HomesMSP — Sharlene, John, Angela