Investment Property Jumbo Mortgage with Low Down Payment

Since I’m in California, and property values where I live and work tend to be on the, shall we say, higher side, residential real estate investors — those looking to purchase a home of 1- to 4-units to be used as an income-producing property — can sometimes be limited in their attractive jumbo mortgage options. This is especially true if they are looking to keep their down payment as low as possible. Many potential rental property buyers are told flat out that even a 20% down payment is California dreamin’, and that a jumbo loan on a duplex or triplex, for example, requires a 30 or even 35% down payment. So in addition to being known for good vibrations and sun, let’s talk about our proclivity for innovation and examine some of our low down payment jumbo mortgage programs specifically catered to investment properties.

15% Down Payment

For a property of 1 to 4 units, we’ll lend up to $1,000,000 at a loan-to-value (LTV) of 85%. This implies a max purchase price of about $1,175,000 at the highest LTV. There is no PMI on this loan.

20% Down Payment

For a property of 1 to 4 units, we’ll lend up to $1,500,000 at a loan-to-value (LTV) of 80%. This implies a max purchase price of $1,875,000 at the highest LTV.

25% Down Payment

For a property of 1 to 4 units, we’ll lend up to $2,500,000 at a loan-to-value (LTV) of 75%. This implies a max purchase price of approximately $3,300,000 at the highest LTV.

Investing in real estate can be elusive where the property values are expensive and where the buyer doesn’t have 30% or more to put down. But we strive to lead the market with loan options that can turn buyers into landlords with even half of what they may have expected to invest at the start.  Further, with the capacity to accommodate multi-unit properties, some of these lower down payment programs can and do cash flow from Day 1.  If you are on the cusp of making your first rental property purchase, get in touch any time and I’ll be happy to review your options with you.

New lease on life, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Landlord Horror Stories

Though you may be disappointed and feel misled, we’re not actually going to focus on landlord horror stories here. Instead, we are going to talk about the nuances of getting home financing on the purchase of an investment property which, if done improperly, can certainly take on the stuff of nightmares. If you’re thinking of making the leap into rental property ownership and becoming a landlord yourself, there are some things you need to know about how the mortgage industry will treat your loan application. And this treatment could be quite different from your previous experience with financing your primary residence.

Let’s review the basics. A residential investment property is a dwelling that contains between one and four units. Any greater number of units than that and you’re in the commercial financing realm. You plan to put in place a lease agreement(s) and obtain rental income on this property and you don’t plan to occupy any of the units yourself as your primary residence. If you meet all of the above, we have a residential non-owner occupied (N/O/O, as we say in the biz) home. Since you’ll be applying for a mortgage, let’s break things up first into “conforming” and “jumbo” because the guidelines can vary for both. You won’t need to worry about FHA or VA processes with respect to investment properties because you cannot get these types of loans on a N/O/O property.

Conforming

If the loan amount that the buyer seeks falls into the conforming loan limits (currently $484,350 nationwide and with specific “jumbo conforming” limits in higher cost areas throughout the country) and the property being purchased is currently not rented, then we, as the lender, will order a rent schedule along with the appraisal. The appraiser will comment on market rents for such a property and we will use 75% of that gross amount as qualifying income. For example, let’s say a buyer purchases a single-family investment property and the market rents are $4000 per month. A conforming loan underwriter will apply $3000 in rental income towards the qualifying total income. If there is an existing lease agreement on the property being purchased and the tenant will stay in the property after its acquisition, then the lender will use the lesser of the lease agreement or the market rental survey, again at 75% of the total. An important aside for conforming. If the purchaser is a first-time buyer (that is, in this case, the buyer does not own a primary residence), most lenders will NOT allow use of the rental income at all in the qualification.

Jumbo

You may concur that conforming’s guidelines are relatively straightforward. If so, you’re ready to advance to jumbo. A key concept to understand as we proceed is the “Qualified Mortgage” or “QM.” Investment property transactions on the jumbo side are going to adhere much more strictly to the characteristics that classify a mortgage as a QM and two concepts that get intertwined with investment properties are:

  1. Property management history.  Does the buyer/borrower have a history of at least two years, documentable with tax returns, to demonstrate ownership and financial management of rental property?
  2. One-year lease agreement. When talking about rental properties and qualifying income from them, all roads lead back to the lease agreement in place (or that will be in place) and whether or not it had/has at least a one-year agreement to start.

So while there are some investors who will vary from these parameters, on the jumbo side, in order to use rental income from the subject property, you can expect your lender to require that you have a property management history and have obtained a one-year lease on the subject property. If you cannot meet these high standards then you are typically “hit” for the full housing payment of investment home without any offset from rents.

Because conforming’s guidelines are relatively sensible and manageable, we tend to see more difficulty on the jumbo side. Nevertheless, we have solutions that permit buyers to purchase without management history and/or without a lease agreement in place. These options can save the day and create and investment opportunity that otherwise would be exceptionally difficult to approve. If you’re looking down your financial road and are ready to take the leap into passive income through real estate rental property, let me know if I can help and if I can answer any of your questions.

I will gladly pay you Tuesday, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283