Rental property financing question

[se012101]

Hi,
My wife and I are saving up for the downpayment on our first rental property. I was wondering if some of you more experienced folks could share some of your experience?
- Is 20% down really doable these days for a rental property? Or is it more realistic to assume 25% or more?
- What could we expect for an interest rate? My understanding is about 6 ish %...?

We're in pretty good shape credit wise - credit score around 760 or 770, debt to income's very low, about 3% right now, maybe 9-10% after the loan, good income, 6 yrs with current employer.

I know there are some other options like getting a HELOC to use for part of the downpayment, but until we've got more experience with this rental property thing, we don't really want to go there.

Thanks in advance to anyone who responds!

 

[Zoomie]

You would easily qualify for conventional financing, Fannie or Freddie, 20% down. There is no more mortgage insurance available on investment property. Your interest rate on a 30 year fixed would be the same as owner occupied (5's) if you paid the investment property premium of around 2.5% (points). Or, pay the points in the rate and you would be upper 6's today. Watch the property condition. Lots of these deals out there need repair and would not qualify for conventional. In that case, go to your local bank and get a commercial loan, 20-25% down, rate based on Prime +. Better yet, get a commercial line of credit, unsecured, and then you are a cash buyer and have extra clout. You might need a letter of credit when making a cash offer to prove "source of funds" to the seller. I've been doing this 30+ years. Love rental houses, have a lot of them, all paid for now, great cashflow. I'm currently stealing short-sales.

 

[CybrMike]

Round here in Indy I'm buying properties cash for $20 - $30K and getting $800+ per month in rent. Who needs financing at these rates?

 

[se012101]

Thanks for the info, guys. This really helps!