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    Investment Property Loans: Q&A with Brad King of US Bank

    The beach communities of Jacksonville are known for their perfect vacation get-a-way opportunities.  Those looking to escape the cold winters up north make a tradition of coming south to our cozy resort towns in search of warm sunshine, the beach, and golf, which makes our area a prime opportunity for an investment property.  If purchasing a home or condo has been on your mind, here are some important things you should know about a mortgage for your investment property compliments of Brad King with US Bank.

    What is the rate difference between a Conventional Loan and a loan on an investment property?

    There are three loan types: FHA, VA, and Conventional.   For investment property, a conventional loan is necessary since FHA and VA do not finance investment property.  For a conventional loan, the difference between the rate on a primary residence and an investment property vary around about a half-percent to three-quarters of a percent.

    What qualifies a property as an investment property or not?

    Lenders must verify the property-use as a Primary Residence, a Second Home, or an Investment Property.   The primary residence is typically the homesteaded home of the owner.   A second home is typically defined as an alternative home for the exclusive personal use of the owner and is typically structured with the same loan terms as a primary residence.   An investment property would be defined as any other property owned that doesn’t fall under the prior two categories.

    If the property is later to be owner-occupied what are the steps to convert the loan to Conventional?

    The terms of the loan would be cast based on the use of the property at acquisition.  The use of the property, later on, won’t change the terms of the loan if/until one were to refinance.

    What are some common misunderstandings for people wishing to purchase an investment property?

    The larger minimum down payments and rate differential is usually the biggest sources of confusion for customers buying an investment property. The guidelines for investment property also have higher credit score minimums and liquidity reserves requirements. Typically, a conventional mortgage on an investment property requires a 20 percent down payment, and as mentioned above, the rates are about a half-percent to three-quarters percent higher.

    Anything else buyers should know for an investment property mortgage?

    With no prior landlord experience, the investor will need to qualify for the mortgage without the proposed rent of a tenant used in the debt ratio.  Lenders will look at the prior 2 years’ tax returns to show a history of owning and managing investment property to determine this.

    Have more questions? Leave us a comment or contact Brad King directly  at 904-708-7453, bradley.king@usbank.com

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