Down Payment To Buy An Investment Property
The amount you need for a down payment to buy a home seems to change by the year. It depends if it's your first time buying a home or 5th and it depends on if you already own a home and want it as an investment. It's also different if you're buying a duplex or multi-family for your first home because that's considered an investment and possibly a jumbo size mortgage loan as well.
Investment Home Buyer
If you're buying a second home home mortgage lenders will require about 20-25% for a down payment in order to buy a home. If you have the minimum down payment then you'll also have to pay for all of the closing costs up front instead of trying to roll them into the monthly mortgage payment. Closing costs are about $2,000 for every $100,000 you want to borrow.
If you don't have a down payment it's not impossible to buy an investment property but you'll have to look for slightly less home. Assume you got approved for $250,000 from your mortgage lender. You should translate that into a monthly amount that you can afford so that you can finagle a down payment.
Approved for $250,000
Monthly mortgage payment - $1,350
Monthly Taxes - $400
This tells you that you can afford $1,750 per month according to the approval you got.
Now you want to look at getting a home equity loan for the amount that you need for a down payment and closing costs. You can also look at borrowing from your 401K plan but you don't have too many choices if you don't alreayd have a down payment. You're going to have to lower your total mortgage amount in a minute so let's assume you need 20% on $250,000 plus about $5,000 in closing costs.
Approved for $1,750 per month
Home Equity loan $55,000 over 15 years at 5% = $435
Monthly Taxes = $400
Now you can afford $915 per month for your mortgage payment. Use a mortgage calculator with the current interest rate that you already got approved for and see how much of a mortgage you can get for $915 per month over 30 years. I just used the calculator to come up with $204,000 (minus 20% down payment of $34,000) with a monthly payment of $912.
It's not always as black and white with a mortgage lender as you might think. I know it seems nearly impossible to even go through the process nevermind getting approved but they want to work with you more than you think. Banks only make money when they loan money.
If you already have a down paymeny it will make the mortgage process that much easier so I suggest trying to save up for it first. It allows you to afford more home because you're not wasting $435 per month on a home equity loan.
Another Way To Save Monthly Borrowing Power
The down payment amount doesn't matter for this process. If you're going to buy a home and resell it within a year or 2 then I recommend this but if you're planning on renting it out after you buy it then I don;t at all.
Get an interest only loan so that you can afford the home you want to flip. An interest only loan will give you a much smaller monthly mortgage payment because you're not paying any principal. You don't need to because you're going to flip it and pay off the mortgage anyways so why do you need to add extra principal each month and lose borrowing power.
Borrowing Power = $1,750 per month
$300,000 at 5% over 30 years = $1,610
Monthly Taxes = $400
This puts you way over your monthly borrowing power..
$300,000 at 5% over 30 years Interest Only = $1,250
Monthly Taxes = $400
That keeps you under the $1,750 per month so that the bank will approve you for the mortgage loan. I do not recommend this loan for any other reason. It should not be used to buy extra home for a first time home buyer or anyone buying a home and living there for longer than 5 years.
Why Interest Only Loans Are Risky
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