Video Video

 STEVE:  Hi, this is Steve Westmark.  Thanks again for watching my video blog this week.  This week, I’m bringing in a loan officer who has a great amount of knowledge in the area of investment real estate and purchasing investment property.  Welcome, and his name is Al Gelschus, and he’s with Guaranteed Rate Mortgage.  Welcome, Al.

 AL:  Thank you, Steve.  I appreciate the opportunity to visit with you.

STEVE:  Well, Al, as a first-time investor, how do you help that first-time investor with down payment and helping them understand interest rates and getting a mortgage?

 AL:  Thanks, Steve.  Really, there’s two types of investment properties that can be financed via the Fannie Mae/Freddie Mac residential mortgage method.  One is a single-family residential and the other are two to four unit residential.  To begin with, the single family is the easiest to finance.  That has a minimum down payment of 15%, but you get better pricing and better options if you put 20 or 25% down.  The 15% down payment does require that you have mortgage insurance or have secondary financing in the amount of 5% to cover the 20% from a primary mortgage lender.

The pricing, i.e., your interest rate that you can receive on this are very attractive but get better with improved credit scores.  A credit score of 680 will have one interest rate versus a credit score of 760 will have a much better interest rate.  The same thing applies to how much money you put down.  A 25% down mortgage would have a far better interest rate than somebody that puts 15% down.  A two to four unit property is a little bit more complicated because it obviously has more units to manage.  They require 25% down in those kind of scenarios.

STEVE:  So what other things are of an impact in underwriting as you go to put that mortgage together?

AL:  Steve, if you’re going to buy a single-family investment property, there’s a couple of complicating factors.  One is if it’s a first-time investment property, you have to qualify with both mortgages, both on your current primary home and then on the new home that you’ll be buying in the future without the benefit of the rental income.  There is an exception to that, however.  If you have 30% equity which is established by an appraisal on your current home, then we could offset some of the cost with the rental income that you’ll be receiving on your new home.

The other issue you need to be concerned with is, in most cases but not all, you’ll need to maintain a rent loss insurance policy of at six months.  That can be a bit complicated, but it’s certainly available in the marketplace.  So those are the two primary considerations that you have to have when buying investment property.

STEVE:  So Al, what would be the terms that might be able to be done with a mortgage like that or even the going interest rates currently?

AL:  Well, Steve, that’s what’s exciting about this.  This is a 30-year fixed rate, 20-year fixed rate, 15-year fixed rate, very boring mortgages.  When you’re talking about personal finance, sometimes boring is always good.  I’d rather have the safety and security of a fixed rate than some of the difficult mortgage vehicles we’ve seen in the past such as ____ [03:14].  These are just plain, simple, fixed-rate mortgages.  The other thing is today interest rates are still very acceptable.  A little higher than we were probably about six months ago, but depending on your credit score, your loan to value, and some other little tricks of the trade that we might do, your rate could be anywhere from 5% to 5.75% on a 30-year fixed rate in today’s market.

Again, you need to talk to your mortgage professional, make sure that we get the annual percentage rates calculated and all the closing costs disclosed to you properly.  But again, it’s a great time to finance and buy. 

STEVE:  Well, thanks Al for coming in.  This is great information I think for people who want to invest in real estate, and I look forward to them giving you a call and figuring out how to make money in buying real estate.

AL:  And Steve, I really want to thank you for the opportunity to educate your customers, and I look forward to doing that as well.