So you’re ready to start investing- but what money do you spend, and how? Here are a few tips about making your down payment, and managing reserve funds.
Acceptable sources for down payments include any of the following:
- Personal checking
- Personal savings
- Money market
- Cash value in a life insurance policy
Another source for a down payment is a home equity line of credit on your primary home. Please note that banks want to see funds have been in your account for 60 days for it to be acceptable. To get good loan approvals on investment properties from Fannie and Freddie, they want to see that, since you don’t live at the property, you have six months payments for the new house payment in reserves or as liquid assets. You also need two months reserves on other investment house payments you already have, for up to four houses, and you need six months payments on all investment houses from house 5 and on. These reserves start to add up so you must always be conscious of what you need in reserves in order to get financing. Also, you should know that you are allowed to use you primary home line of credit for down payment which most investors never explore, let alone even think about.
The pros are:
- Banks have deeper pockets.
- Best terms.
- Lowest interest rate and fees.
The cons are:
- Requires more money down (typically 20%).
- Intensive approval and underwriting process.
- Longer to fund and close.
Are you starting to see why I’ve mentioned grooming on this first money source of bank financing? You need to look pretty and not get stuck. It is all about fitting in, so it is my job to teach you how to look, and your job to have a good deal before you get to the table.
Did you know that single-family financing is easier than multi-family financing? Multi-family financing is typically .5% higher per deal and about $500 to $800 more in costs; this is because banks see the multi-family as having more risk involved.
Also note that smaller loan sizes do not equal smaller costs. Our blog shares that the proper execution of your real estate planning blueprint is that you can get bank financing without ever spending any money for a down payment! This money source is a place to raise real estate cash, and in the end most dealmaker investors will tap into the source as much as they can. This is where you can get the best financing terms for investment real estate on the planet, and this is an area you absolutely should focus on when securing money.
Investing in rental properties, and real estate can be complicated, that’s why many choose to work with professionals like Starting Point Real Estate. If you’re interested in learning more about financing your next investment, contact us today. Be sure to follow us on Facebook, Twitter, Pinterest.