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Investment Property Mortgage Qualification

 

 

In the past few years, the landscape of the mortgage lending has considerably changed and the qualifications for investment property became more stringent these days. Before, you will be qualified in an investment property mortgage if you will give at least 20 percent down payment. This time, almost 20 percent of the minimum down payment is reduced into 30 years.

 

If you want to understand how the investment properties are being qualified along various lenders, it might be a complex process however, there is an example that will help you better understand the qualifications. The given examples are all based on:

 

  • Mortgage: 80% LTV or %500, 000
  • Rental Income per month: $3,800
  • Purchase price: duplex, $625,000
  • Mortgage Payment per month: $2,127
  • Property tax per month: $275

 

 

70% Rule

 

This rule is considered as a favourable method wherein this 70% rental income is being accounted. The given example above will net an amount of $258 surplus and this will be added on the income of the applicant which in turn strengths their mortgage application.

 

 

50% Rule

 

 

Among all other rules, this is considered as the utmost penalizing rules which are used by most lenders. It only accounts 50% of their rental income. Just like on the above example, the monthly net have resulted into $502, wherein this is added in the liability part of mortgage application, it reduces the qualification amount required for the applicants.

 

 

Shortfall/Rental Surplus

 

 

In order to effectively compute the interests, net, monthly income, rental income and everything, the lender makes use of a calculator. This is used along with the set of figures for insurance and management, repairs and maintenance and vacancy. This method is known as the best methods because it nets about $638 every month which is then added on the income of the applicants.

 

 

T1 General Line 126

 

There are lenders that allow their applicants to make use of the line 126 of T1 general particularly in the current investment properties. This is done when they are qualifying for new property. Usually, most of the real estate investors are maximizing the so called CCA or capital cost allowance expense and depreciation deduction in order to show loss. It provides great advantage especially from the taxation perspective but, if there is a negative figure in the line 126, it will be added on the section of liability mortgage application. If you have positive figure in the line 126, it will help you in strengthening your mortgage application since this will added as your income.

 

Those are the methods which are usually used by the lenders whenever there is someone or a real estate investor wants to buy a property for personal use. They make use of these methods in order to assess the qualifications of the applicants. It will be stressful and daunting task especially if you want to be qualified in the investment property mortgage that is why it is very important that you are guided by mortgage professional. This will enable you to avoid meeting problems and disappointments.

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