Loans and down payments

15 articles

• Fannie Mae stops at ten financed properties. The tenth needs $111,846.

  Fannie Mae’s rules allow up to ten financed one- to four-unit properties when the new loan is for a rental or a second home. The count is the easy part. In this example the fifth rental asks for $40,306 in reserve and the tenth asks for $111,846.

  6 min read

• Paying off this rental frees $15,967 a year. Only $11,884 is a return.

  Paying off a rental raises its cash flow, and what the money earns is the loan’s interest rate, nothing more. In this example a $171,625 check ten years into a $250,000 rental lifts cash flow from $420 to $1,751 a month and avoids $11,884 of interest in the first year.

  5 min read

• Your lender counts a $1,697 payment and wants six of them in the bank

  An investment property loan turns on five things: the down payment, the credit score, the reserves left after closing, the payment the lender counts, and how much of the rent helps you qualify. In this example the counted payment on a $250,000 rental is $1,697 a month, so six months of reserves is $10,184.

  5 min read

• This rental returns 8.8% on a conventional loan and 7.0% on a DSCR loan

  A conventional loan is underwritten on your income, and a DSCR loan on the property’s rent. In this example the conventional loan takes $57,500 and returns 8.8% a year; the DSCR loan, at an assumed 25% down and 7.75%, takes $70,000 and returns 7.0%.

  6 min read

• Putting 15% down on this rental saves $12,500 and costs $232 a month

  Yes, a conventional loan charges mortgage insurance whenever you put down less than 20%, and on a single rental 15% down is as low as the loan goes. In this example the smaller down payment keeps $12,500 at closing and drops cash flow from $420 a month to $188.

  6 min read

• The same house pays $407 a month on its old loan and loses $189 on a new one

  You can, and the loan you already have is usually the reason to. In this example a $300,000 house with $200,000 left at 3.5% pays $407 a month as a rental, while the same house bought today at 7% loses $189 a month.

  5 min read

• A seller’s note asked $25,000 less up front and put $209,372 on a clock

  In seller financing the person selling the house becomes your lender, so the down payment and the term are whatever you both agree to. In the example below a seller’s note at 10% down earns 14.8% on cash against a bank loan’s 8.8%, and leaves $209,372 due in year 5.

  5 min read

• An 8.5% rate costs this DSCR borrower $15,458 more at closing

  A DSCR lender sizes the loan on the property’s income, so its real requirement is rent that covers the payment by its minimum, often 1.25 times. In this example that floor cuts the loan from $225,000 to $209,542 at 8.5%, and the missing $15,458 comes out of your pocket at closing.

  5 min read

• A 15-year loan on this rental leaves $20 a month instead of $420

  A 15-year loan costs much less in interest and builds equity far faster, but the higher payment comes straight out of your monthly cash flow. In this example the same house leaves $420 a month on a 30-year loan and $20 a month on a 15-year one.

  5 min read

• Paying cash lifts this rental to $1,751 a month and cuts its 10-year return

  Paying cash raises the monthly cash flow and lowers the return on your money. In this example the same $250,000 house pays $1,751 a month for cash and $420 with 20% down, but the cash buyer’s 10-year IRR is 10.1% against 17.5% for the borrower.

  5 min read

• Your lender counts $2,063 of a $2,750 rent, and $365 of it as income

  Usually yes, but a lender counts 75% of the rent, not all of it, and then subtracts the payment, taxes and insurance on that property. In this example a $2,750 rent adds $365 a month to the borrower’s income, and only if they already have a year of landlord experience.

  5 min read

• This rental’s DSCR is 1.32 or 1.62, depending on how the lender counts it

  It depends on the lender: each one sets its own minimum and decides what counts as income and as the payment. In this example, a $250,000 house renting for $2,750 scores 1.32 on income after running costs over loan payments, and 1.62 on rent over the full monthly payment. On the second formula it still reaches 1.25 at $2,122 rent, where it loses $63 a month.

  6 min read