Refinance - Investment Property Options
Investment property loans usually depend on two things: the no of units within a property, and the use of a property as a principal residence. Furthermore, there are two types of investment property loans; residential and commercial. The standards for the lending of loans for the above two segments are significantly different. It is important to understand the difference between the two before contemplating getting a loan.
Residential Loans are for properties that provide dwelling for families or individuals, and are comprised of four units or less. The loans are made on standards such as: Debt to Income, Credit Score, Loan to Value (LTV), and Landlord experience. After the sub-prime mortgage crisis the standards have become quite stringent resulting in the dropping of LTV ratio from 125% to 70%- 80% range. Land experience, although not a requirement, can affect your ability to get a loan.
Commercial loans on the other hand, are designed for properties with 5 units or more, and other non-residential investment properties. The rates are usually higher and time lengths of loans are shorter. The standards for commercial loans are similar with the exception of addition of one major standard in the form of Debt Service Coverage Ratio (DSCR). The degree and extent to which the standards are applicable to commercial loans is also varied.
The qualification process for commercial loans focuses on the income and cash flow generated from the property, unlike residential loans where your personal income and profile have precedence. This is based on the premise that commercial properties are often larger in size, and if the borrower is unable to make the payments, the property should be able to cover for itself. DSCR ratio which equals net operating income/debt service is the primary tool used by the lenders in determining the ratio of cash flow to expenses of a particular property. A commercial lender typically likes to see a DSCR of 1.2, meaning that after all the expenses are paid, there is at least 20% cash flow profit on top.
Until now, the information we have covered, pertains to conventional mortgage loans, that is, a loan with a fixed interest rate and a fixed period of time. When we think of conventional loans, we usually associate them with large financial institutions such as banks. But unfortunately, not everyone is able to meet the stringent requirements of large financial institutions usually due to the credit profiles that do not yield a high enough credit score. In this event, unconventional loan may be the only option available to investors who are financially sound but have hit a financing wall with conventional funding, and that is where we come in.
We not only provide conventional loans but also specialize in providing unconventional mortgage loans with varying guidelines, terms and conditions. Based on different investor profiles and needs, we have six different "Non Owner Occupied" Loan programs ranging from short term property loans for flips, and foreclosures, to jumbo and more conventional portfolio loans with special terms and conditions for investors with excellent profiles. More details of the options available to you are in the link below.
Below is a list of some of our Refinance "Investment Property" loan programs.
Let us know if you have any questions. Do not try to pre qualify yourself; call Customer Service 858-222-7534 to speak with a Mortgage Expert or fill out a Pre Qualification form.