While there are numerous arguments in favor of buying your investment condo for 20 percent or more down, namely, lower interest rates and a smaller amount to borrow, you may be able to pull off a down payment of 10 percent if your credit passes muster with your lending institution. On the upside, with 10 percent down, it will take fewer years to save enough for a down payment and you can get in on the investment action earlier to generate cash flow.
While it is possible to buy a condo with 10 percent down, you should note that putting anything lower than 20 percent down could result in having to pay private mortgage insurance, according to Financial Web. However, many insurance companies refuse to insure condo mortgages; so in some cases, private mortgage insurance may not be available, while in others, you may have no choice but to pay it. Down-payment requirements also vary depending on the loan you are taking out and the type of construction. A single-family investment property will require a 15 percent down payment for a conventional loan, as of January 2013, according to Guaranteed Rate.
Before you enter the fray, you will need a variety of documents to present to the realtors, real estate attorneys, accountants and mortgage officers involved in your purchase. Among the key papers are pay stubs, investment and retirement account statements as well as any divorce or bankruptcy papers. Additional information is required of the self-employed: you should submit bank and financial statements, recent tax returns and copies of your business license.
Also before snapping up that new condo as an investment, make sure you follow the lender requirement that investors, taken together, comprise no more than 50 percent of all owners in the condo complex. (See link in notes) Additionally, you may not be able to get financing unless at least half of the units are already sold and closed. If you are itching to buy a bunch of units, you may have to back down, since as mortgage industry website "The Truth About Mortgage" points out, lenders will frown upon ownership of more than 10 percent of the total complex by a single entity.
Pre-Approval and Financing
Give yourself a leg up over other buyers by getting prequalified for a loan. Obtain the pre-approval in writing from your mortgage broker or lender before you jump into the negotiations, as this document will place you ahead of riskier prospective buyers. To qualify for a conventional loan, which generally is backed by government-sponsored enterprises such as Fannie Mae or Freddie Mac, you'll have to meet certain eligibility criteria such as having monthly housing costs of less than 28 percent of your gross monthly income, says the Freddie Mac website.
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