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INVESTMENT PROPERTY AND QUALIFYING FOR A MORTGAGE – WOODINVILLE PROPERTY MANAGEMENT

Woodinville, WA

Written by SJA Property Management

SJA offers premier Seattle property management services and serves as the local real estate industry’s most experienced resource for rental property owners.

If you, like many other homeowners, have invested in property and now want a mortgage, you’re probably wondering how it affects your ability to get a new mortgage.

Whether you want to purchase a new home, get a mortgage on your existing residence, or use a mortgage to invest in more property, these loans give you a lot of freedom to invest in, purchase, and refinance assets. If you live in Woodinville, where property values are high, it becomes even more important, especially if you are planning on investing with your money.  

Does an Investment Property Affect Your Chances of Getting a Mortgage

Depending on whether your property is paid off or on its own mortgage, your investment property may or may not affect your property. One consideration is that most mortgage lenders will try to ascertain that you have enough to pay on both mortgages for at least 3-4 months with no income, including no rental income. This should include the cost of taxes, insurance, and maintenance. This means that you will have to have twice as much in the bank for a mortgage if you have investment property with a mortgage. You will usually need a credit score of at least 720 to qualify for a second mortgage on another piece of property, whether primary or not.  

DTI  

Lenders consider your DTI (Debt to Income) ratio, which allows them to assess how much of a risk you are. The higher the interest rate and the higher the percentage of your income the monthly payment is, the higher your risk rate. As you may have guessed, the higher your risk rate, the less likely you are to get the mortgage approval. As of 2012, the maximum DTI allowed in Woodinville and Seattle is 29/41. You can calculate in up to 75% of your rental income into your income, but 50% is a safer bet, as it makes more room for maintenance and other costs.  

Interest Rates 

The second consideration is that you will typically get a lower interest rate on your primary residence than you will on an investment property. This means that if you are trying to take out a mortgage on a rental home, you might end up paying considerably more than you would if it were on your residence. On the other hand, if you are already paying interest on a mortgage on your investment property and want to take a mortgage out to pay it off, you can likely get a lower interest rate on your primary residence.  

Taking out a mortgage on any property is a big step, and owning investment property does affect getting one in several ways. Not only will you likely have to pay additional interest rates, have more liquid assets, and have a higher regular income, you will also have to have a significantly higher credit score. 

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