Ocean Mortgage 2021 Newsletter 105

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"Did I just read that right?  I can get a purchase mortgage on a residential investment property that has no income?!"

Aside from the lender requiring a regular appraisal, practically all you need is a supplemental appraisal report to confirm what the market rents are likely to be in the area of the rental property. The extra report is required by lenders so that a reasonable ratio of revenues-to-expenses may be derived. If you already have a lease – e.g., that you may inherit from the Seller upon purchase, or that you may have already negotiated prior to closing – then the mortgage approval process should be smooth.

To achieve the best interest rate (around 5.5%), you will need to demonstrate that 75% of the existing or projected monthly rent will fully cover your monthly mortgage payments. However – there are several national mortgage lenders who will actually give you credit for 100% of the projected monthly rent, even if it is less than the projected monthly mortgage payments (although this additional risk will be factored into your rate).

Other tidbits for these “Debt Service Coverage Ratio”or “DSCR” deals:

  • Tax Returns: No personal or business returns required
  • Minimum FICO Score: 680 (but 700+ will allow you to borrow up to 80% of the purchase price)
  • Prepayment Penalties: Typically apply if you repay some or all of the loan within two years
  • Lender Credits: The better the FICO and LTV, the more credits granted to offset some closing costs
  • Reserve Requirements: Minimum 6 months of mortgage payments.

Here’s the Point: As long as you can come up with a 20% down payment, you can buy a rental property without being employed and without having a lease.

Mike Kanuka, Founder & President

NMLS #901949 (Company)
NMLS #880882 (Individual)

Equal Housing Opportunity