Investment Mortgage Guy

I have been helping investors with their rehab financing on investment property for over 10 years. During this time, I’ve seen the banks both ease their underwriting guidelines and get very strict on what kinds of loans are acceptable to them. In our current market, local banks are more conservative than ever on what kind of loan they want to put on their books.

Here are some standards I have found in today’s market when looking for a rehab loan that will probably be required to have your loan approved by the bank.

1) 20% of your loan amount needs to be out into escrow in case a problem arises during the rehab process. This deposit is returned to you when the property has been fully renovated and the construction loan is paid off with permanent financing.

2) A debt to income ratio of less the 50% is required. Take your current gross income on your pay stubs and divide that by your monthly long term debt obligations like your mortgage payment, the minimum payment on your credit cards, car loan payments and other debts you may have with 10 or more payments left. Insurance and utility bills are not considered. You also need to take into account the property you are going to buy. Lenders will use 75% of the projected rental income of the property (even if the property is not currently rented) and subtract your payment for principle, interest, taxes and insurance.  A positive number adds to your income and a negative numbers adds to yoour debts. Self employed individuals will need to take a less agressive stance on the write offs in their business or they will find themselves unable to qualify for a mortgage. Lenders with take the net profit or loss from the business and divide that numbers from your current debts.

3) Your credit score needs to be  least a 680. Credit scores range from 450 to 850. A 680 score probably means your credit cards are paid down to at least 40% of the maximum balance available and you have had no late payments in the last 12 months.

If you can get through those toughbarriers to entry, the program can really be an effective way to acquire some great properties with low money down.

I wish I was starting out today buying properties. The deals are great and the cash flow is even greater.

Rob Bonahoom - Mortgage Coach - “Helping People Build Wealth Through Real Estate”