If you’re looking to refinance an investment property in Santa Rosa or the Sonoma County surrounding area and your loan is not owned by Fannie Mae or Freddie Mac, the property will have to appraise for market value. Here’s the catch, investment properties require a minimum of 20% equity as well as other lending criteria. For our purposes a investment property is a property that is rented out, and generates income. It can be single-family residence, planned unit development, condo or multifamily 2 to 4 unit property. Investment properties are identified on the Schedule E of the federal income tax return.
*Make no mistake, lenders give more scrutiny to investment properties transactions than primary home transactions.
Few Tips On Investment Property Mortgage Loans
- When refinancing, the property has to be rented out a lease for 12 months in some cases shorter ( with very strong explanations, including hows and whys)
- Fair market rents can be used to offset the mortgage payment, specifically 70% of these gross rents. For example, if the property is rented for $2000 per month and the total mortgage payment associated with carrying the property is $1900 per month there’s going to be a cash flow shortfall when it comes time to securing the new home loan. Math will be as follows ….70% of $2000 per month is a monthly rental benefit of $1400 per month, less the mortgage payment of $1900, translates to $500 per month which turns into a liability against total income on the mortgage application.
- Lease agreement will almost will be required if the property is rented.
- Investment property appraisals cost more because the appraiser has to do more work. On income property appraisals, appraisers have to include a fair market rent survey as well as operating income analysis making investment property appraisals typically around $650
So if you need to refinance your investment property and the loan is not Harp 2 Eligible, house has to be appraised at least 20% equity. In other words the biggest loan the lender can do is 80% of the value of the property. In most parts of Sonoma County, home prices are dramatically higher resulting in more equity, that is the difference between the value of the property and any debt associated with it. Our recent blog poss discusses how much house has to appraise to refinance.
If you are looking for a competitive interest rate on your Santa Rosa investment property, start by getting a free mortgage quote.