Investment Properties: Frequently Asked Questions About What to Expect

While many people consider owning a primary residence a feather in their cap, there are folks out there who want to take the next step and own an investment property as well.

If you’re a novice, it’s likely you have questions.  If you’ve done it before, it doesn’t hurt to review some investment property basics and sharpen your property-owner skills.

Below, we address some frequently asked questions about investment properties. Once you’ve read the list, if you still have any questions please ask them in the comment section, and we’ll be happy to answer them:

What loan-to-value (LTV), credit score, and income is required for an investment property loan?

 

  • LTV – Typically, for a 1-unit, investment property purchase, a 15% down payment is required (an LTV of 85%).  For a 2-4 unit investment property purchase, a 25% down payment is required for an LTV of 75 percent.
  • Credit Score – The minimum credit score needed (for Quicken Loans) is at least a 620.
  • Income – The required income varies depending on the amount of the house payment and other debt.  The total debt-to-income ratio (including the house payment) generally cannot exceed 45%.

Is it true that I must have two years of landlord experience?  What if this is my first time?

Freddie Mac and Fannie Mae differ on this rule.  Freddie requires a borrower buying an investment property to show two years of landlord experience, through tax returns, in order to count projected rent as income. Fannie Mae says it’s still possible to buy an investment property and use a portion of income to qualify without having a two-year history.  Quicken Loans does not impose the two-year rule on the majority of investment property purchase transactions.

Can I buy with partners that I am not related to?   Is there a maximum number of partners allowed?

Yes you can buy with partners who aren’t your relatives.  Quicken Loans places a cap of four borrowers on a loan application, but there is no limit to the number of people on the title.

Can I buy in an LLC?

No, the general rule is that homes may only be purchased by individuals, not LLCs or other business structures.

Are gift funds allowed?

No gifted funds are allowed.  The minimum 20-25% down payment for an investment property must be 100% from the borrower’s own money.

How much is needed in reserves?

While some lenders require investors to show four months worth of principal, interest, taxes, insurance and homeowners association dues, some lenders require more.  Quicken Loans requires six months of house payments (including taxes and insurance) plus an additional two months of house payments in reserves for every non-primary residence that a person owns.

Are the requirements different if I want to buy a condominium?

There are some added hurdles in the loan process if you’re considering a condominium.  First, 51% of the complex needs to be either owner-occupied or a second home, since the agencies will not allow you to buy a share of a complex that is solely for investment. Next, the condo association must prove that it’s in good financial standing or that it has enough in reserves if repairs are needed.  In addition, a statement from the condo association is required to show no lawsuits exist among current owners and/or the association.

How is the rental income counted?

For new investment property purchases, income will be calculated based on the lesser of the rental income stated on the lease agreement or the appraiser’s opinion of what can be expected for a specific market. Once that’s established, the lender will reduce that amount by another 25% to determine qualifying income.  This provides the lender with a conservative amount that factors in potential vacancy periods.

What mortgage rates do I qualify for?

Keep in mind each mortgage lender may tweak their qualifying standards so be sure to ask about their guidelines. Mortgage rates for investment properties are typically higher than that of primary residences and second homes. Both Fannie and Freddie have adjustments that could affect your principal and interest payments depending on your loan amount and other factors.

Since most online information does not take into account rental property adjustments, it’s best to speak directly to a Quicken Loans mortgage banker to obtain an accurate interest rate and mortgage payment.

We hope this info helps investors wishing to take advantage of the great opportunities and deals available in today’s real estate market. Still have questions? Leave us a comment and we’ll be in touch!

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This Post Has 30 Comments

  1. I inherited a portion of 3 homes and would like to buy out my siblings to make these rental properties. Can I get a loan for the amount I need to buy these homes. 2 were rentals already.

  2. I’m interested in a second mortgage to purchase a rental property.

    If the rental property doesn’t have an existing tenant, is the rent appraisal (Form 1007, etc.) used to determine the estimated rental income when qualifying for a mortgage? If so, what percentage of the rent appraisal is used in determining the final Debt-to-Income rati

    1. Hey Troy:

      You wouldn’t be able to get a second mortgage on your existing home to purchase a rental property through us. However, if you’re looking to purchase a new home to use as a rental, you would also need other documentation including a 12-month lease agreement. I’m going to get your question to someone who can answer it more thoroughly.

      Thanks,
      Kevin Graham

    1. Hi Gerson:

      Work history is certainly a factor in any home transaction, but I’m going to pass your question along to a Home Loan Expert that can look into your personal situation and give you more information specific to you.

      Thanks,
      Kevin Graham

  3. I bought a duplex 10 years ago as owner occupied. I no longer liver there. I want to refinance it. Are there any 80% ltv options available?

    There were several foreclosures in 2008-2010 that drove my value down and leaving me with a high interest rate. But it still makes decent cash flow.

    1. Hi Chad:

      We don’t offer any 80% LTV options to refinance investment properties, but I’m going to have someone reach out to you and go over your possible options.

      Thanks,
      Kevin Graham

  4. I am looking to purchase and investment property that I plan to move to a LLC. Am I allowed to quit claim the property without the mortgage coming due? If so, what procedures do I need to follow?

    1. I advise you contact the servicer of your loan to see if this is something they will allow.
      If you cannot put the property into an LLC, you may be able to put it in a trust. Thanks for your question

  5. I want to purchase an investment property that will require work before it will pass an inspection (I need a renovation loan). Does Quicken offer this for investors?

  6. I purchased my home with QL 3 years ago and currently have a 30 yr mortgage. I am looking into moving out of state next year and would like to know if I can turn my current single family home into a rental property?

  7. Thanks for sharing these article with investment property question. You have missed one question, which investment property is best? But to let property or Real Estate. Hope these question also asked frequently.

  8. I am so glad that a few other people have some of the same questions that I have. I was really worried that I might have had to had two years of landlord experience. Now that I know this, I will be able to work with one of my good friends and invest in our apartment. Thanks for the help.

  9. We’ve owned our property since 2003, & refinanced with Quicken in 2010. We had to move due to employment. Are there any restrictions regarding renting our property out while we are waiting for it to sell?

    1. Hi Brad! Your comment has been passed on to one of our licensed mortgage experts who will reach out to you soon.

  10. I’m confused. I had contacted Quicken Loans about an Investment Loan. I was told since I purchase properties 20%-30% below market value that I could only get a loan for what I purchased the property for and not on the renovation amount. I was also told there was a limit of 4 properties I could purchase. I checked the Fannie Mae guidelines and it shows clear as day that I can purchase 10 properties. I was told by a Bank that I could get a Portfolio loan after 10 properties. Since I plan on purchasing 60 properties in the next 5 years Quicken Loans is going to be out $27,000 in monthly revenue from my company.

  11. I am in the military and when we move to a new location I purchase a home as our primary residence. When we move we hire a management company for that location and start the process over again. We currently have three homes. We would like to move these homes under a LLC or another business model, because when we look to finance another home these houses skew our debt to income ratio. Is it possible to move these homes on paper or would we need to go through refinancing? We have good interest rates on all of them and would not want to jeopardize that. Thank you in advance for your support.

    1. Hey Anthony, very interesting question. I’m going to send your question to our Home Loan Experts who should be in touch with you soon.

      Thanks for reading!

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