What You Need to Know When Obtaining Financing for a Rental Property

What You Need to Know When Obtaining Financing for a Rental Property

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. 

Final Words

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. 

Not Your Parents’ Mortgage: 2017 is the Time to Buy a House

Not Your Parents’ Mortgage: 2017 is the Time to Buy a House

The time for sitting on the sidelines is over.

With last year’s mortgage rates hitting historic lows and the Federal Reserve eyeing another rate hike later this year, prospective homebuyers have more reasons than ever to achieve their dreams of homeownership. But biding your time or using the wrong lender could cost you…big time.

Still unsure? Read on and see why low interest rates coupled with some of the best choices in mortgages are making 2017 a banner year for home-buying.

1) One Starbucks Drink Per Day = Down Payment

Most millennials think they need to put 20% down to buy a new home. Why? That’s how Mom and Dad did it in their day.

According to our 2017 Millennial housing outlook study, 70% of respondents say that saving for a down payment is the biggest obstacle to homeownership. But times have changed.

Today, you can buy or refinance a home for as little as 1% down—an average of about $2,000. Skip that daily Starbucks latte, and in 13 months, you’ll have a down payment. If you’re a renter, think about using your security deposit as a down payment.

2) Forget the One-Size-Fits-All Mortgage

When your parents shopped for their first mortgage, they probably went to their local bank. Today, TV tells you to go to a direct mega-lender. But did you know that there’s a better option?

An independent broker will shop your loan with multiple lenders to find the best rate that meets your needs. Big banks and mega-lenders only have one set of options—and getting you a mortgage is really only a part-time job in between selling other products like auto loans, CDs and checking accounts.

Unlike their bank counterparts, independent mortgage brokers can put in the time and legwork required to find the best options—including those same big-bank loans. In the end, more options means lower payments and extra money in your pocket. Use a website like FindAMortgageBroker.com to connect with a broker near you.

3) ARMs are not Taboo

Adjustable-rate mortgages (ARMs) are not a dirty word. Today’s ARMs are different and better, with the option to lower your rate and save you money.

Government-sponsored, modern ARMs no longer have prepayment penalties, allowing borrowers to pay down their principal faster and refinance whenever they want. Plus, they have caps that prevent rates from ever increasing by more than 5%.

Think of it this way. If you take out a seven-year ARM at today’s rates, you would save thousands of dollars during those years, even if rates are just 0.5% or 0.75% lower than on a 30-year fixed-rate mortgage. Even in a worst-case scenario, where interest rates go through the roof, the borrower would still break even on their seven-year ARM payments after nine years.

Need more convincing? Research shows that 90% of borrowers don’t stay in the same mortgage for more than nine years—meaning the vast majority of homeowners will end up saving money.

Are ARMs for everyone? No. But at the very least, ask a mortgage broker if they might be right for your situation.

4) Plant a Tree for Mortgages

Say goodbye to mountains of paper and digging up pay stubs. Technology makes it easy to shop, read, bank—and, you guessed it, apply for a mortgage. I bet Mom and Dad wish they had it this easy!

We see 2017 as the breakout year for the truly paperless mortgage industry. My company has been at the forefront of the shift to paperless—offering a simple online application, verification of income, assets and liabilities, and e-sign, all with our easy-to-use app.

And we don’t stop there. We are so green that we plant a tree for every paperless loan we process.

Millennials won’t settle for their parents’ way of doing business. Thankfully, for today’s first-time homebuyers, shopping for a mortgage is simple and painless.

Why choosing a mortgage broker versus a big bank lending institution is ideal for your home purchase or refinance. A Guide for Homebuyers and Homeowners

Why choosing a mortgage broker versus a big bank lending institution is ideal for your home purchase or refinance. A Guide for Homebuyers and Homeowners

When you embark upon the journey of becoming a homeowner there’s plenty of questions you may have along the way. Here at Financial Mortgage Solutions, we strive for integrity, honesty and to be informative and upfront with our clients throughout the entire process of securing mortgage financing for our clients. Often times our clients and mortgage consumers merely want a simple explanation to answer financially related questions about their Loan Estimate or Closing Disclosure, in layman’s terms. Other times, really great questions arise that deserve a longer and more involved explanation. That’s why we decided to write this blog post: “Why choosing a mortgage broker over a big bank lending institution is ideal of your home purchase or refinance”! It’s a long title, I know. With that lengthy title comes a deeper, more involved explanation to better quantify why working with a loan officer at a mortgage brokerage versus a loan officer at a bank or credit union, such as Bank of Albuquerque, Bank of America or New Mexico Educators Credit Union, are more beneficial in financing your home loan.

What is the big difference between a mortgage broker and a big bank like Bank of America, or Wells Fargo for mortgage financing? We will elaborate on this topic later in this blog post on precisely WHY mortgage brokers have more flexibility and work with different mortgage lenders to tailor the perfect home loan to your specific needs. 

Does it really matter if I choose a bank or a mortgage broker for my home loan?” The short answer is YES, it really does matter who you, the homebuyer, choose to hire to secure financing for your home purchase or refinance.

Mortgage brokers are held to a higher standard than banks and mortgage lenders when it comes to loan costs to the homebuyer for a home purchase. Laws have been passed that limit mortgage brokers in their level of compensation for originating a loan. For whatever reason, banks and lenders are not held to the same standard regarding loan officer compensation. If you put two and two together, this means that the higher the compensation level is for the loan officer, the higher the interest rate and fees are to the homebuyer. In addition to this compensation cap, mortgage brokers must also disclose their compensation (yield-spread premium) at closing. Again, lenders and banks are not held to this standard. At the time of closing on your home loan, the lender credits the brokerage as a percentage of the amount financed. Whereas, a big lending institutions, like Wells Fargo or a smaller institution like a New Mexico Credit Union, is not required to disclose to the homebuyer what kind of compensation is paid to the loan officer during any part of the loan process. As a result, there is a potential for the homebuyer to be overcharged by a bank and not even realize it. Often times, the homeowner ends up with a higher interest rate due to the lack of full disclosure on their home purchase.

Mortgage brokers are flexible. As a mortgage broker, we work with several different lenders offering a wide array of home loan products. Wholesale rates with a loan officer at a mortgage brokerage can actually be much cheaper compared to what you’ll get with retail bank's lending rates. Different mortgage lenders specialize in different areas and have different niches targeted toward different homebuyers. By pulling together several different mortgage lenders, it provides the homebuyer with several different home loan options that fit their specific needs. By going to a big bank or direct lender, the homebuyer will be limited to their specific home loan products and underwriting guidelines. This could result in a "cookie-cutter" loan that doesn't actually meet the homebuyer's needs and financial goals. Additionally, mortgage brokers are quicker to adapt to the ever-changing mortgage market. The home loan market is always changing, and new home loan products are starting to be made available to the homebuyer. The mortgage broker is better positioned to offer these new home loan products as soon as they are made available, because brokers have relationships with multiple mortgage lenders.

Mortgage brokers are your advocate. Mortgage broker's compensation levels are fixed at a set level with several different mortgage lenders. This means that as a mortgage broker, we do not have hidden agenda to put you into one type of a home loan versus another. We can honestly, and objectively put the homebuyer in the best home loan with the best mortgage lender fitting of the homebuyer's needs. We work for the homebuyer, and are not subject to minimum mortgage loan quotas like a big bank, such as Lending Tree, would be. This means that mortgage brokers have a vested interest in their client’s goals of becoming a homeowner, and not in some agenda dictated by a big bank. We are with you every step of the process. We work with your Realtor and you, as a team to help you with your dreams of buying a home. Bank employees at retail lending institutions get paid wages to work at their bank as employees. In some situations, loan officers at banks are even paid regardless of whether they close a home loan or secure financing for a home loan. The loan officer at mortgage brokerage does all the legwork for you,

Financial Mortgage Solutions is a mortgage brokerage licensed in the state of New Mexico. We have experienced loan officers with integrity. We hold our licensed mortgage loan originators to the highest standards for home loan mortgage transactions, which sets us apart from other brokerages and big banks in New Mexico. We work with multiple wholesale mortgage lenders with various loan products allowing us to dynamically respond to the needs of our clients and their financial goals. We are here to help homebuyers secure mortgage financing for every type of mortgage transaction in every city in New Mexico. Our goal is to find the perfect home loan for your specific needs as a homebuyer. Call us to find out if you prequalify for a home loan! (Albuquerque, Santa Fe, Corrales, Foothills area, Placitas, Rio Rancho etc.). Or you can check out our Quick Quote page!

What are my options when buying a home and securing financing?

Getting Pre-Approved for a Mortgage

Getting Pre-Approved for a Mortgage

Let's face it, as nice as it would be to buy a home without financing, it is simply not realistic for the majority of home buyers.  If writing a check was all there was to it, purchasing a home would be fairly straightforward in regards to what is actually affordable.   With this in mind, one of the best investments to make in the quest of home ownership is meeting with a mortgage professional who can get you pre-approved and help you know what is affordable.