Unraveling Real Estate Investor Loans

by Gerry from Sunnyvale, California, Santa Clara

Unraveling Real Estate Investor Loans: Kate, My sister and I are inheriting my mom's house and I plan to buy my sister out at about $125,000. The house is worth $250,000. I have excellent credit and I’m a first time buyer at almost 60. About a year ago I was pre-approved for $400,000. Where should I apply for a mortgage with the best interest rate? I will be turning the house into a rental. The house is in Haverstraw, New York (Rockland County) and I live in California.


Gerry continues... My questions are:

  1. What advantages do I have as a first time buyer?

  2. Will my age help to get a lower interest rate?

  3. For a mortgage one-half the price of the house, do I need to provide a down payment?

  4. What do I need to do to get the lowest possible interest rate?

  5. Should I use PMI or insure separately?

Thanks for your help.

Kate Answers: Unraveling Real Estate Investor Loans

***zz-portrait-left.shtml*** Dear Gerry,

Before I attempt to unravel the mysteries of the investor loan, I want to tell you how excited I am for you.

Rental property with 50% equity usually cash flows and produces income. Congratulations!

First Time Home Buyers & Real Estate Investor Loans

Ask Kate how to refinance rental property into owner-occupied mortgage
What advantages do I have as a first time buyer?

Historically, the majority of first time home buyer programs have been for owner occupied properties.

I am not aware of special financing for rental property except for the FNMA HomePath program.

But this special financing is reserved for properties in Fannie Mae's foreclosure portfolio.

However, it won't take more than a half hour to browse the New York .gov website for local mortgage programs benefiting first time home buyers or properties within a certain zip code.

Age & Real Estate Investor Loans

Will my age help to get a lower interest rate?

How old you are shouldn't factor into loan approval, as long as you are of the contractual age of 18.

There was a major bank in the 90's who got their hand slapped for denying loans to anyone over 70, stating "It is unlikely the loan will be paid back." The government did not take to that kindly.

So check your birth certificate and as long as you were born before 1992, you should be in the clear. :)

Equity & Real Estate Investor Loans

For a mortgage one-half the price of the house, do I need to provide a down payment?

You will need to ask your mortgage company if this real estate transaction will be considered a refinance or a purchase. Generally speaking, the loan-to-value ratio for a refinance is based on the appraised value.

However for a home buyer, the percentage of down payment is based on purchase price or appraised value, whichever is less.

Best Mortgage Rates & Real Estate Investor Loans

What do I need to do to get the lowest possible interest rate?

Approvals with the best mortgage rates are based on excellent credit, adequate income, manageable debt and sufficient appraised value. But even with the most qualified borrowers, home loan transactions can be tricky. Here's how to overcome mortgage approval hiccups.

Understanding mortgage closing costs and following smart procedures for locking in your interest rate are crucial to getting your best mortgage rate.

In fact, just check in here to see the grief that occurs over mismanaged rate locks at Ask Kate's Mortgage Rate Lock Unzipped At Last. But good news, if you read through my mortgage rate lock series, you can avoid this heartache and get your best mortgage rate.

PMI Private Mortgage Insurance & Real Estate Investor Loans

Should I use PMI or insure separately?

Okay, definition time! PMI stands for private mortgage insurance and is required by the bank when the down payment or equity is less than 20% as discussed earlier.

Whether or not you want PMI is not in question. If required, the mortgage company will order it as they are the true client of the MI company.

You should know more about PMI before you apply for your mortgage. Start at What Is PMI to become an expert! In addition, here is a recent question from a homeowner in Florida, How Can I Cancel PMI.

Gerry, one more thing. I'd like to hear back from you. Let me know if this page is helpful to you. Anyone can Ask Kate or comment on this page. (Link to commenting is found at the bottom of this page.)

Have You Seen The Most Recent Ask Kate Answers

Best wishes,

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Refinance Investment property after 1 year to regular mortgage
by: Naku from Phoenix

I am planning to buy a home which is tenant occupied. It will be occupied by the tenant until November 2013.

I know that since it would not be owner occupied, I have to take a investor loan. I am planning to put 20% down. So the rate may be around 5%.

After the tenant has vacated in November 2013, I will move into the home. Can I then refinance to a regular mortgage, once I move in? How much does it cost and I can I get then prevailing mortgage rates?


Hi Naku, Kate here.

Once the tenant vacates and you're moving into the home, you are eligible for owner-occupied financing.

Understand some lenders may be leery about the occupancy status. To assure them that you are truly turning the home into your personal residence, it's helpful to offer an updated driver's license or utility bill with your new address.

Mortgage rates and closing costs depend on the current marketplace and individual qualifications such as credit, income, debts, and savings. So while I can't tell you what your costs are going to be, I can assure you that owner-occupied loans are generally offered the best mortgage rates and points.

Here's what you can start doing to stay on top of trends in mortgage rates and points. Follow Kate's Weekly Mortgage Rate Report posted in my blog. It's not too early to begin educating yourself. By the time you are ready to refinance, you'll be ahead of the game.

Best wishes, Kate

P.S. Learn more about good faith estimates at Understanding Mortgage Closing Costs and How to Reduce Mortgage Refinancing Costs.

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You can also ask Kate about your mortgage at Ask Kate About Buying a House.

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