Investors have historically used non-traditional sources of financing and lenders to fund their real estate empire, often at higher interest rates. That is partially because lenders perceive non-owner-occupied loans riskier than owner occupied properties.
Bottom line, all loans, even those for self-employed, depend on the lenders perceived risk which determines loan guidelines and ultimately the rate offered. Non-owner-occupied properties are considered a higher risk because it is easier to walk away from. Therefor ga higher down payment is required, 10-30%, which helps to reduce risk. The higher the perceived risk, the higher the interest rate.
Don’t worry, there are many ways to calculate income, if required. 75% of any rental income is allowed, which will offset the mortgage PITI (principal, interest, taxes and insurance) payment. Any excess, or loss, will be counted towards your income. Rental income is determined by a signed lease, or projected rental income as defined by the appraiser. If you are self-employed, we use one- or two-years tax returns and even 12-24 months bank statements. And we can even do a DSCR loan that only relies on rental income.
A Debt Service Coverage Ratio (DSCR) loan is a type of mortgage designed specifically for real estate investors. Unlike traditional loans that rely on the borrower's personal income to qualify, DSCR loans use the prospective rental income of the property being financed. This means that the loan qualification is based on the income the property is expected to generate, rather than the borrower's personal income. These loans typically require a minimum 1to1 ratio, which means the rental income is enough to cover the mortgage payment, principal Interest, taxes and insurance (PITI) with a down payment of 20-30%. Lower down payments can be achieved with increased documentation.
If you have gotten this far your head must be spinning! The thought of even buying a home for the first time can be overwhelming, let alone worrying about which program you might qualify for. The good news is we do all that work for you. It takes only a simple conversation to start, no obligation, no pressure. We’ll get a basic understanding of your particulars, determine how much you might qualify for and match that with a mortgage payment you would feel comfortable with. We will also discuss what downpayment assistance programs might be best for you. Request a call today and let’s get started!
