by: Matthew Allen
Who would have ever guessed that there would be a home loan that would let
you buy rental property with zero down? But it is a reality.
Here are the three big things you must keep in mind when buying rental property
with nothing down.
- You must have a credit score of at least 680. This score is the national
average of credit scores.
- You must have 6 months of payments in reserves. In other words you need
6 months of principal, interest, taxes and insurance readily available.
The reserves can be in the form of checking, savings, 401K, stocks, or
- The lender may not allow the rent to be included in your debt to income
ratios if you have never owned rental property before. But they may also
allow the rents to be included if you already have a signed lease agreement.
Each lender is different so it’s worth shopping around.
Please keep in mind that if you buy rental property with zero down you may
have negative rents. In other words you may be losing money every month because
you can not charge enough to cover your monthly payment. You have to decide
if you can live with this kind of alligator.
To buy rental property with zero down you more than likely will need to do
a full document mortgage. In other words you will need to prove everything.
However, for those with credit scores at 720 or higher you may qualify for
a stated income loan. With a stated income loan you do not need to prove your
income. You just say how much it is. Most of these programs will not loan with
the stated option if there are negative rents.
The zero down rental property loans are structured as an 80/20 loan. In other
words you are getting two loans. A first mortgage at 80% of the purchase price
and a second mortgage at 20% of the purchase price.
You also have several other options as far as choosing an ARM, a fixed rate
product, or interest only. These loans also have pre-payment penalties. Unless
you live in a state where pre-payment penalties are not allowed.
Often time you can have the seller pay up to 2% of the purchase price towards
your closing costs. If you get the seller to agree to this. You may only have
to come in with 1.5% to 2% of the purchase yourself in closing costs.
If you truly want to buy rental property with zero down. You will want to
call your local mortgage broker and find out more information or even see if
you qualify. Of course if they do not offer this type of program keep calling
until you find someone who does.
About The Author
Matthew Allen is a loan officer with Action Brokerage Services, Inc.