One of the best ways to invest money is through purchasing a rental property in Albuquerque. To do so, you will need to look into obtaining a mortgage for financing the property. However, before getting qualified for a loan on an investment, there are plenty of things that you should consider.
Rental Property Financing Tips
According to experts, the rates of non-owner occupied rental properties in Albuquerque are usually 0.25%-0.50% higher than the owner-occupied mortgages. The closing costs, such as title, lender, settlement agent, and appraisal report fees for non-owner occupied mortgages are also higher.
A lot of lenders may ask their borrowers for a large down payment when obtaining a mortgages for investment properties. This is especially true for larger mortgages. Furthermore, there are cases where the lenders would also ask the borrower to settle at least 25% of the purchase price of the non-owner occupied property. On the other hand, for a loan-to-value ratio of 75%, lenders would be asked to make a down payment that's at least 25%. In addition, Freddie Mac will allow a borrower to have a total of six properties without requiring 25% down. Basically, the lower the LTV is, the greater the down payment would be needed. There are qualifying factors for borrowers who have higher credit scores, more in reserve or liquid assets, or a higher income which may allow certain borrowers to qualify for merely 1% down through. Mortgage Brokers help a borrower qualify for the best rate and term based on their needs and financial goals.
It's also important to note that the mortgages on owner occupied and non-owner occupied are treated differently for tax purposes. In Albuquerque, the mortgage interest expense for owner occupied properties could be taken away from the gross income, and you'll enjoy a tax benefit from it. This is not applicable for non-owner occupied properties, and that's why it's important to consult a tax professional first to know the rules applicable to your mortgage.
Basic Metrics Used
As a rule of thumb, the more loans you have, the more you have to pay upfront, and here's what you should know:
- Loans 1-4: 20% down payment
- Loans 5-10: 25% down payment
- Loans 1-10: 25% down payment
(Though, most lenders would ask you to settle 30% after the third loan.)
Ensure That You Have a Good Amount of Cash
Aside from the down payment, it's very important that the borrower would have at least six months of cash reserves available per property in Albuquerque. That means if you own a primary residence and you have decided to acquire a rental, then you'll be asked to pay six months of mortgage payments for the future rental property and residence.
After knowing the price point of the rental property you're planning to purchase, it's ideal to have a mortgage broker give you the estimated monthly payment. By doing so, you'll have a clearer picture of what’s expected from you. You’ll also be able to know what your minimum overall rental payment must be to cover the monthly payments.
Documentation Is Crucial
It's essential that you have everything properly documented. As a borrower, you'll have to provide supporting documents for your home loan, such as bank statements, tax returns, documents, and brokerage statements to authenticate the source of any money you're going to use. Aside from that, your mortgage broker would also have to verify the income during the beginning and before the closing.
Don't Use Credit While Your Loan Is Pending
Refrain from buying anything using credit while your loan is in process. Mortgage Brokers will be checking your credit and your existing outstanding debt. Adding to that before applying for a loan is something you should refrain from.
Consult an Expert
Not all Mortgage Brokers in Albuquerque offer the same loans. Thus, it makes sense why you should shop around for a mortgage broker in Albuquerque, and if possible, consult an expert before settling in. Although most lenders would let you decide whether you're going to pay up front in terms of “points,” chances are, you don't fully understand what this means. With the help of a professional, you'll be able to avoid being charged extra.
If possible, try to look for closing agents as well. The actual costs, such as legal fees, document preparation, title insurance, and legal fees. In Albuquerque,these costs can vary based on the settlement agent company (title companies), and based upon a borrower's circumstances, such as second mortgages, investment properties. By simply choosing the right closing agent, you'll be able to save a lot of cash. You can always ask your local mortgage broker and real estate agents for recommendations.
Also, if you work with a property manager or already know which company you plan to work with, reach out to them. This is one of the many benefits of working with a property management company. They deal with many property owners and are invested in increasing their clients’ real estate portfolios. You’ll have access to their expertise and network.
After knowing the basics, you'll probably be ready to dive in and invest in a rental property in Albuquerque by obtaining a mortgage. Make sure that you have done your homework, and done plenty of research. Likewise, just like what has been mentioned earlier, getting the help of a financial advisor would give you the assurance that you'll be able to progress successfully.
About the Author:
Advantage Pointe Properties is a local property management firm servicing Albuquerque, New Mexico.