Is a no-ratio investment-property loan right for you?
There are many ways to build a successful investment portfolio. Traditional retirement plans, like 401(k)s and Roth IRAs are perfectly acceptable ways to create your financial wellbeing. They are low-risk, low-work options that allow you to place your money in an account and watch it slowly grow.
But some investors want more. They want more potential for high returns, and they want more involvement in the overall process of growing their money. They are also comfortable taking on more risk.
For these investors, real estate is a great option. But real estate, as we all know, is expensive, often requiring the use of loans to purchase a property. However, if you don’t have the income to purchase a second house, you may think that you can’t purchase an investment property at all.
In other cases, investors do in fact have the money. The have cash from savings or an inheritance to make the purchase, but this income is not documented either through tax returns or bank statements. This can make it difficult to get the loan to leverage the acquisition of real estate.
A no-ratio investment-property loan can help. With this program, you can purchase a property without the documentation of your income. This creates more convenience and increase your chances of success as a real-estate investor.
Learn Why a No-Ratio Investment Property Loan is So Useful to Investors
Many types of investors will find this program to be incredibly useful, including:
- First-time investors: People new to the world of property investments may have difficult verifying their incomes to qualify.
- Seasoned investors: Some experienced investors can also not verify their incomes, which makes this a useful loan option for expanding a portfolio. This is, in many ways, the real benefit of these programs.
Why is this Program Beneficial?
Typically, residential loans are qualified based on the borrower’s income. This is usually done using the borrower’s tax returns, although bank statements are used to verify the income of the self-employed.
By comparison, commercial loans are usually based primarily on the cash flow of the specific property being purchased. The income from the property must cover about 1.25% of the payment of the loan, the property taxes, and insurance. This is referred to as the debt service coverage ratio, or “DSCR.”.
But this loan program is unique. It takes the debt service coverage ratio, usually used in commercial loans, and applies it to residential property. But it doesn’t stop there; it goes one step further by allowing or a no-ratio program.
Basically, this means that you can still purchase the investment property, even if the actual rent payment does not cover the mortgage payment.
You will generally find two different ways to approach debt service coverage ratio loans like these:
- The DSCR is the monthly gross income divided by the total payment of the property payment, taxes, and insurance (as well as HOA fees is applicable). Some of these programs are looking for a ratio of 1.1% to as low as 0.5%.
- The no-ratio program can have a higher interest rate than the DSCR program, but the market rents remain stated.
Who is Eligible for this Loan Product?
As you can see, the no-ratio investment-loan and DSCR programs can be highly beneficial. Best of all, it is available to a variety of different investors. U.S. citizens, for example, will be eligible for the program, assuming they meet the requirements. (More on requirements below.) Permanent resident aliens can use the program, and so can non-permanent resident aliens and foreign nationals. Inter-vivos revocable trust funds can also use the program to expand and strengthen financial holdings.
If you are involved in a business partnership, you can use the program as well. It is available to qualifying limited partnerships, general partnerships, and corporations.
First-time investors will be eligible, as will experienced investors with a large portfolio.
What Types of Properties Can You Purchase?
With this loan program, you will find that many different types of properties are available. Single-family homes, which create the foundation for the real estate industry, are available to borrowers. These can be either attached or detached.
You can also use the program to purchase a multi-unit property. Duplexes, for example, are available, as are units with three or four properties. (The limit, however, is four. So you can’t use this program to purchase a large apartment facility.)
Smaller properties and units in metro centers are also eligible. Townhouses and condos (both warrantable and non-warrantable) are eligible for financing with a no-ratio investment property loan.
Requirements and Details for the No-Ratio Investment-Property Loan
While many people are eligible, including U.S. citizens and foreign nationals, not everyone will qualify, as there are certain requirements for using these options. They are not particularly strict (certainly not for investment loans), but there are still requirements that you need to meet.
Although no proof of income is required to use a no-ratio investment-property loan (other loan options require tax returns or bank statements), you will need to demonstrate at least three months worth of cash reserves. Essentially, you need to show the lending agent that you have financial assets equal to three months of loan payments. If, for example, the monthly payment is $3,000, you will need to demonstrate $9,000 in cash reserves. (This may vary depending on the program and other factors, so speak with a lending agent for specific details.)
To qualify, you will need to show a minimum credit score of 640. This is not a particularly low score, but it’s certainly not a high mark either. If your credit score is higher, say in the 700s, you can likely qualify for a better interest rate on the loan.
Loan-to-value ratio (LTV) requirements will also be applied. For a condo, the highest LTV is 75%, meaning you will need to bring a 25% downpayment. For a detached property, the LTV can go as high as 80%. Interest-only is available, but there will be a minimum downpayment of 25%.
For this no-ratio investment-property loan, you can purchase a property with a 30-year fixed loan or a 30-year fixed interest-only loan. Adjustable-rate mortgages are available as well.
With so much flexibility, a no-ratio investment-property loan is perfect for many investors.
Fast Access to Excellent Loans Through an Experienced Agent
Contact our staff today and see why we are one of the most trusted mortgage offices in the San Diego area. We are proud to serve your needs, so let us help you create a top-quality portfolio through a no-ratio investment-property loan.
We can assist your needs with the FastTrack program, which helps you purchase a property quickly by moving through the loan process with speed and efficiency. It’s a great way to present an aggressive offer to sellers, which is why we recommend the FastTrack program to many of our clients. Contact us today to learn more!
Chad was very personable. His staff was very suportive.
I had the pleasure of working with Chads team. Everything went as planned. I was very pleased. I still want to take them to dinner. I am completely enjoying my new home”
“Chad, it was a pleasure working with you. Your loan was smooth, speedy, and we were kept well informed. I will make sure to prioritize offers where you are the loan officer as I know they run smoothly.”
A very responsible and experienced professional with his highly effective team
I really enjoyed working with Chad Baker and the rest of the team. This was our first time buying a home in California and we started with unnecessary assumptions based on our previous experience as home-owners in a different state. Chad and his team were available throughout the whole process, explaining the state differences, answering all our phone calls and emails quickly and directly, and providing detailed weekly status reports so that all parties including agents knew exactly where we were in the process. Chad was very experienced and provided customized loan products for us to consider, which definitely facilitated our transaction. I recommend the Chad Baker team! ”