Mortgages for Investors - a raw deal indeed!

Mortgage and Lending with Envision Mortgage Solutions

There was a time not long ago that investors with good credit could get a mortgage for that next property with no money down at all - even without closing costs. The problem is - as always - a few bad apples ruined the bushell.

Today lenders have very strict guidelines about who they will and will not lend to. The barries for investors are the highest by far. Not only do most lenders want to see 20% down if you want to be anywhere in the same neighborhood as conforming rates, but they strictly limit how many you can own. How many you have purchased recently. They also won't allow an investor to tap other properties unless they have owned them for more than 12 months, even if they bought them at 50% below the market value for the area. When it comes to investors, what you bought it for, is the market value for at least 12 months.

Why are Investors getting such a raw deal? Well, the problem begins with the definition of investor. That is: investor vs speculator. I'll give you an example... Dateline Orlando, FLA. Ivestors purchased hundreds of new construction condos and townhomes at pre-construction prices, knowing that they would be worth 20 - 30% more as soon as they were actually built and offered for sale. People would buy them before the investor would ever have to make a payment - sweet! Investors purchased 3 or 4 or 5 or more. Why not? If you could make 20K or 50K per unit and they'd sell like hotcakes right out of the gate!

You already know the rest of the story don't you? Hundreds of these units hit the market all at once. There were already cracks appearing in the facad of the mortgage marketplace, so fewer buyers were qualifying and suddenly hundreds of mortgages defaulted at the 1st payment.

You already know, these were not investors but speculators, looking for easy money that failed to appear. This was the true beginning of the current mortgage and credit crunch.

If you are planning to invest in real estate, be sure you have all of your numbers straight before you begin. Be sure you over estimate all of your costs. Figure in management fees and let someone else handle those details (headaches) for 7 - 10% of your rents. For goodness sake, play secret shopper and find out what customary rents are for that area. You'd better not plan on renting a $1200 per month unit in an area where all the other similar units rent for $900. Finally, remember that lenders when figuring your income and debt ratios, only allow you credit for 75% of your rents. That means that properties that rent for $1200 better not have a total PITI payment of more than $900 or they will call it negative cash flow - and that's if the renter pays all the utilities themselves.

Work with some one who can help you anticipate all of your costs and who will help you reverse engineer your purchase price. Finally, don't ever fall in love with a property. It's a sure way to pay too much and ruin your cash flow.

Comments (1)

Kaushik Sirkar
Call Realty, Inc. - Chandler, AZ
Unfortunately its the nature of the beast.  What are you going to do?  Sometimes they lend too easily, sometimes its 'too' difficult'!
Sep 17, 2007 11:17 AM