When investing in non-owner occupied rental properties, two levels of qualification must be met to achieve the loan. The buyer will qualify for the loan by meeting the lenders minimal requirements for credit score and Debt to Income (DTI) ratios. The property will qualify for the loan by meeting the lenders minimal Debt Service Coverage Ratio (DSCR) limits. Then, the lender will generate a Global Debt to Income Ratio for the buyer- where the lender recalculates the buyers DTI as if they already owned the property. DTI and GDTI Ratios that fall between 38% - 41% tend to be ideal.
If you are buying properties over four units, you are buying the property through an LLC or some other corporate entity, then funding will be in the form of a commercial loan. Commercial loans are typically from 15-20 years (or less) with an interest rate between 1%-1.5% higher than a residential interest rate. The lender will typically require between 20%-25% down or higher. Please consult with your real estate attorney, accountant, and lender to see if setting up an LLC or some other form of entity is right for you.
Calculating Mortgage Payments
Please use either of the calculators below to calculate your mortgage payments.
excellent on-line calculator from U.S. Mortgage. Useful tip: Select whether you are entering a %
or $ amount in the data box, then enter the amount or percentage. Hit "back button" to return to this page.
Mortgage Qualification Calculator: This on-line calculator from Time Value software will help you to determine how much house you can afford and/or qualify for. Useful tip: Select whether you are entering a % or $ amount in the data box, then enter the amount or percentage. Hit "back button" to return to this page.
NOTE: When submitting a contract to purchase your residential rental property, it will be critical that you submit a pre-approval letter with the contract- helping assure the seller that the deal won't fall apart because you can't get a loan.
Meeting with a Lender
Please know that using either of these calculators does not replace the real benefit of meeting with a lender. When you meet with the lender, your goal is to better understand exactly what you can afford. For that, you are looking for the lender to provide you with a:
1. Pre-approval- this is where you prove to the lender what you told them earlier. Proof will come from income tax forms (last two years), W-2's (last two years) credit reports, current pay stubs (last two months), bank statements (last two months), and asset documentation (401K, IRA, retirement statements, etc.), other sources of income, employment gap letter, copy of your driver's license, copy of any current leases, etc. A pre-approval letter, from the lender, IS the document you will need to get the seller to accept your Agreement of Sale for the property.
2. Loan Estimate- a thee page document that will include the Loan amount, interest rate and estimated monthly payments, itemized closing costs and how much cash you'll need at closing, your total costs in the first 5 years of the loan, the annual percentage rate (APR) and total interest percentage (TIP), how much late payments will cost, how often the payments can change, and by how much (if it's an adjustable-rate mortgage), and whether the loan is assumable, and other important elements.
Be prepared, as the lender at some point will ask you for the following documents for the rental property:
1. last 2-3 years of IRS Schedule Es or 8825s
2. an accurate and up to date rent roll with security deposit data, and
3. copies of all active leases.
Call Max at 412-552-9811 to discuss your situation and needs when looking to invest in high ROI residential rental properties. Email MaxWilson@MaxBusinessGroup.com to learn all the ways our Commission FREEServices will save your thousands in your next purchase.
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