So you’ve decided to buy an investment property. What kind of financial regulations should you be aware of before proceeding any further?
First, since I’m known as the “VA loan guy,” let’s get this out of the way: You can’t use a VA loan to purchase an investment property unless you’re purchasing a duplex, triplex, or quadplex and you plan on living in one of the units yourself.
Investment property loans are always conventional loans, and the current conforming limit (the maximum for an investment property) is $484,350. The mandatory down payment for an investment property is at least 20%, and you can get a slightly better interest rate if you put down more than that. Speaking of interest rates, they’ll always be considerably higher for investment properties.
Also, you must have up to six months’ worth of cash reserves (or the equivalent of six monthly mortgage payments) in your bank account after you make your down payment and pay your closing costs. In other words, buying an investment property requires a good deal of cash. The seller can pay a small part of your closing costs when purchasing, but the limit is 2% of the purchase price.
Can you count the current rents coming in? Absolutely, but only 75% of those rents. The reason why is this accounts for various long-term maintenance and insurance costs you’ll have to pay while owning the property.
As always, if you have any questions about this or any other subject regarding VA loans, don’t hesitate to reach out to me. It doesn’t cost a penny to talk.