That’s right! How would you like to have your tenants pay your monthly mortgage payments? This would mean; not a single penny from your pocket would be going towards paying off the mortgage. As you may know now, we are talking about a rental property. Here are some tips you should follow before approaching the official purchase of a rental property.

1. Look for a good/reputable real estate agent.
2. Look for a good/reputable mortgage broker.
3. Look for a good/reputable mortgage insurance broker.
4. Try to find a property that would not be vacant most of the time.
5. Try to find a property without major work that has to be done.
6. Make sure the property was not built too long ago (inspection will take care of these aspects).

Usually, when you purchase a four unit property, it will be classified as a residential property. If its is over, it will be put under as a commercial property. The issue with a commercial property is that it requires a higher ratio of an initial mortgage down payment compared to a residential property. This is where your mortgage broker/advisor would help, they will be able to provide information which will outline exactly what is what and the cost as well. You also would not have to worry about having a large sum of money saved up, to qualify for a large property. The reason is that; the rental income would help qualify for the loan. The lender will do some calculations to get an approximate value for the rental income and take that into consideration in the process of giving out the loan. You can read more about this in one of our articles here; “Would Rental Income Help Qualify For A Loan?”. This type of property is a great revenue puller, get in this market while you can! You would also need some insurance for your property other than the mortgage insurance. This insurance would cover anything caused to your building by tenants, IE: a fire.

Useful Links & Tools
Information On Private Mortgage Insurance (PMI)
How To Cancel Private Mortgage Insurance
Would Rental Income Help Qualify For A Loan
Save Time & Money From Your Mortgage
Mortgage Tools

The way the economy is going now, people might be having a hard time putting money upfront for a mortgage down payment. They also can’t be financially ready for a zero down payment mortgage. There is a solution which offer some assistance to those who are tight financially, which would help them pay for their mortgage down payment. Some state organizations and agencies operate several bond programs which would help give some funds to home buyers. This money is basically from the Government, and they know it can be hard to buy that first home. However, these agencies will be looking at your current income level, but you would be shocked to hear, they accept a lot of people into the program. Once the mortgage down payment has been approved, you may get the chance of getting a lower interest rate. You should know, there is more work involved. This is always the case, the more easier one thing gets, the harder the other one. Paper work would be increased and you may have to attend some courses to learn some tips/knowledge. The best solution for you to do is, get in contact with a mortgage advisor or financial advisor who is knowledgeable with this issue.

Some Tools You May Use
Mortgage Tools
Mortgage Down Payment

In some cases people would be living in a home, but would be buying a rental property which they would rent out for the year. The answer is simple, YES! The lender will calculate the annual income gained from the rental property and use that in the qualification of the loan. This purchase will be classified as an investment. In another case, if the property were bought for a permanent occupancy, it would be classified as permanent occupancy. The rates that come along with investment loans will be higher than permanent occupancy loans. The interest would be sometimes more than one a half times the original. However, down payment would be at a higher level, if the property bought is classified under as a commercial property or a revenue property. This is usually the case when there are more than 6 units which are rented out.

This article will apply to you if this is a question you are asking yourself: I currently own a home, but I want to sell and buy another one. Should I buy first and then sell after, or should I sell first and buy after?

Someone home owners sell their home and in the end don’t end up buying a home and look for a place to put all their things and a place to live. This can be a terrible situation to be in. Even worse would be, if you buy a home and don’t end up selling the existing home. You would need to take care of both mortgage payments. So, this shows both steps are risky situations to be in. However, it depends on your situation.

Situation 1: You Have Good Income & Enough Savings

In this situation you would have enough money to payout two mortgages and make an initial down payment without taking any equity from your existing home. Once you buy your new home and have all the paper work done, you should put it on the market. It is wise to put a closing date on the existing home, after the closing for your new home because this allows you to stay at your current home till its sold.

Situation 2: You Have Good Income & Not Enough Savings

In this situation you have a good income which will allow you to pay up two mortgages, but you do not have enough money to pay that initial down payment. A solution is to take some equity from your current home. The best way to do this is to get a home equity line of credit, this way you have some time to look for a good house, and buy it. Once you sell your old home, you can use the money to pay off the mortgage/debts. If you are aware of your situation before hand, it is best to apply for a home equity line of credit. It will be extremely hard to get a home equity line of credit if your house is on the market.

Situation 3: Not Enough Income or Savings

In this case you don’t have enough income or savings. You can’t pay for two mortgages, nor can you buy the home. This is the case where you should sell your home before you buy. When you have the contract to sell your existing home, the loan lender will not look at the old mortgage and whether you can pay it. Now, this will start from scratch like a new home purchase. The sale of your home will pay for the new home. Although in the meantime, you would need to pay certain fee’s. For this you would be available to get a small loan from the bank which would be paid when your existing home is sold!

Some Tools
Home Equity Loans - The Basics - Part 3
Home Equity Loans - The Basics - Part 2
Home Equity Loans - The Basics - Part 1
All Types of Mortgage Loans
Mortgage Calculators & Tools