Property Buying Process
Entering the investment property market involves creating a strategy, and financing is a vital factor in that strategy. PHH Mortgage can help make the financing process understandable.
Your situation and investment plan are unique, so we help you find a financing option that fits your needs. Investors usually have lots of questions, and our experienced loan officers are ready to answer. Just call (855) 233-9749.
As you consider your investment purchase, this overview can help you get an idea of the process, some benefits and considerations, and options.
Work Out Your Investment Plan
There are many places for you to put your money – and all carry some risk and potential reward. As an investor, you have a certain amount of funds, and you’re looking for a particular return on investment (ROI) over a particular span of time. Additionally, you look at many of the same factors as a primary homeowner would – but many more are added and the priorities are shifted.
You’re examining questions of risk, weighing tax benefits and drawbacks, looking at income fluctuations over the years and considering multiple other financial questions as much as you’re examining the merits of a particular home.
Property investors and financial advisors recommend starting with an overall investment plan, then determining whether a property fits within it – rather than finding a property first and then trying to fit it into a plan. For instance, part of your investment plan might be to create a strategy for when to add more investment properties to your portfolio, when to sell or when to convert a rental property to a sale one.
In short, it’s about the investment – not the property.
Examine Costs and Payment Factors
Investment properties have unique requirements – be ready with funds for a down payment and closing costs.
Cash payments: Paying in cash will not only depend on whether you have the cash on-hand, but how it might affect your tax situation, cash flow or other investments. Weigh this choice against your overall investment plan.
Down payment: Mortgage insurance is not available on investment properties. You’ll need a minimum 20 percent down payment. The remainder can often be financed, but contact us to find out what types of properties are eligible for financing. Interest rates can be higher for investment property purchases than for primary residence purchases. The larger your down payment, the lower your monthly mortgage payments will be.
Closing costs: These costs complete the transfer of ownership and include the loan origination fee, attorneys’ fees, initial escrow payments and the costs of obtaining title insurance and a survey. Closing costs are usually based on the property’s price and will vary according to the location of your investment property.
Monthly payments: Payments are based on both the principal (the amount of the loan) and the interest (the amount you pay to borrow money, calculated as a percentage of the amount borrowed). Money may be held in escrow for taxes and insurance. You may choose to pay more on the principal as part of your investment plan or for tax reasons.
Additional Expenses on Investment Properties
Expenses can add up fast, particularly if you’re using your investment property as a source of rental income. Here are a few of the costs to consider:
Water/sewer
Garbage
Utilities
Legal fees
Accounting
Evictions
Vacancies
Office supplies
Fuel
Scheduled maintenance
Capital improvements
Preparation and Timing Matter
Timing is a major consideration when it comes to investment properties. As you weigh your decisions against your overall investment plan, you’ll be determining not just what property you want to buy, but when to buy, how long you want to hold onto it and what kind of time span you seek for ROI. Knowing your credit history and borrowing power is critical before getting started. Having tools and information in place will help you make your move at the time that’s right for you.
Just as you would for a primary home purchase, you’ll need to determine the amount you’re comfortable spending. An affordability calculator can help you get the right figures. After that, talk to one of our loan officers to ensure the property type is eligible for a mortgage and find a financing option that's right for you.
Get a Pre-Approval Decision
Approval requirements can be different when you are buying an investment property. Take a few minutes to call us for a loan pre-approval decision, so you’ll know the amount you can borrow and can feel more assured as you start your investment property search. In fact, most real estate agents will ask you to have a pre-approval letter in hand with the loan amount indicated before they show you homes.
Another timesaver: You may have a lot of documents to shuffle with your investment purchase. Having complete, accurate and legible documentation facilitates speedy processing – and we can help you stay on track. You can also contact us to receive a pre-approval decision in as little as one business day.
Determine the Worth of Your Investment
Getting a sense of the value of a potential investment property starts as it does with any real estate purchase: by obtaining a list of comparable homes (known as “comps”) recently sold in the area. Your real estate agent can assist with this and will help you determine the right offering price, as well as gain insight into how your investment may change over the years.
A good way to get an idea of the properties available in your price range is to search online. If you’re planning to use mortgage financing, make sure it’s not an excluded type of property – and if you’re investing in a property for rental, research online for changes in demand, rental rates and conditions of properties nearby. Examine if leases are long-term or if there is fast turnover, the conditions that local advertisements offer on rentals and even the overall population and job growth.
Remember that any offer you make could become legally binding, so we strongly recommend thinking carefully through the details and consulting with your real estate agent and financial advisor beforehand.
Inspection and Loan Commitment Stages
Make sure that your offer includes a home inspection by an accredited home inspector and an outline of actions to be taken if problems arise. The inspection should cover interior and exterior structural elements, as well as heating/cooling, electrical and plumbing systems. It’s a good idea to be involved in the inspection, even if it means traveling, to keep an eye on your investment and ask questions about the property.
The loan commitment takes place once we approve the loan and receive an acceptable appraisal and title search that meet our guidelines.
Remember that any offer you make could become legally binding, so we strongly recommend thinking carefully through the details and consulting with your real estate agent and financial advisor beforehand.
Timing Matters
The sooner the deal closes, the sooner you can realize potential return.
At the closing, you and the seller transfer funds and sign all applicable paperwork to finalize the transaction. Real estate agents, closing agents, attorneys, and mortgage and title representatives may all be present at the closing.
Our loan officer will help you prepare for closing and will provide you with an estimate of any closing fees.
Preparation Puts You Ahead
Buying an investment property can require specialized information and different documentation. Even if you’ve bought investment properties in the past, market conditions are subject to change that may, in turn, impose different requirements.
At PHH Mortgage, we’re prepared to help you navigate the details and requirements. Ready to get started? Call an experienced PHH Mortgage loan officer at (855) 233-9749 or get started online.
