Here are some important things to keep in mind when looking at financing property for investment purposes:
Rates for investment properties can be much different:
Rental property loans are usually 0.375% higher interest rate than a non-owner occupied loan. Alternatively, the borrower can pay 1.5 more points and keep the same rate as owner occupied properties.
Qualifying conditions differ:
Lenders typically use 75% of rent, less principal, interest, taxes, and insurance to determine cash flow. If the cash flow is negative, the negative cash flow is added to the borrower’s other debts to see if borrower can qualify for a loan on the property.
Loan to Value Ratio:
Usually, fixed rates loans are made for 80% of value for the purchase for no-cash-out refinancing and 75% LTV for cash-out refinancing. For three or four unit properties the loan-to-value ratio tend to be lower, with even lower LTV’s for cash-out refinances.