Review current non-owner occupied mortgage rates for January 19, 2020. The table below enables you to compare non-owner occupied mortgage rates and fees for leading lenders in your area. There tends to be a wider variation in loan terms for investment property mortgages which makes shopping multiple lenders more important. Compare APRs, interest rates, monthly payments and closing costs for different lenders and loan programs.
Adjust the inputs in the refine your search menu to compare updated non-owner occupied mortgage rates and lenders based on your specific criteria including loan amount and program. We recommend that you contact at least five lenders to find the best non-owner occupied loan terms including the lowest interest rate and costs.
Non-owner occupied mortgage rate pricing depends on several factors including borrower financial profile, property characteristics, loan-to-value (LTV) ratio, loan program and term and the lender. Below we outline what you should look for when you compare investment property loan terms.
Borrower Financial Profile. Perhaps the most important factor that determines your ability to qualify for a non-owner occupied mortgage is your personal and financial profile. Lenders want to make sure that you earn sufficient income to afford the loan and also absorb any unexpected expenses such as property repairs or vacancies. Lenders also want to make sure that you have experience managing rental properties. If you lack landlord experience you may need to qualify for the mortgage based solely on your personal income. Borrowers with steady incomes, higher credit scores and significant investment property management experience may benefit from better non-owner occupied mortgage terms.
Property Cash Flow Characteristics. The cash flow characteristics of the property being financed can also affect your loan terms. Properties that generate more stable cash flow are viewed favorably by lenders while properties with less consistent income streams can be more challenging to finance or the terms may be more expensive. If the property generates a loss, you must earn enough money to afford the loss as well as your other loan payments. Lenders also examine the age and type of the property to understand potential maintenance and capital expenditure costs.
Loan Program and Length. Your choice of loan program and length also impact non-owner occupied mortgage rate pricing. As illustrated by the table above, the initial rate for an adjustable rate mortgage (ARM) is lower than for a fixed rate mortgage. Additionally, you may also be able to lower your rate by selecting a shorter loan such as a fifteen year mortgage. Although a 30 year fixed rate loan offers borrowers maximum certainty and peace of mind, it is important to understand how mortgage program and length impact your loan terms.
Compare Lenders. Current non-owner occupied mortgage rates can vary significantly by lender. In fact, there may be a difference of 0.750% or more in rates between different lenders. This wide range in pricing means that you should compare several mortgage proposals before choosing a lender. Comparing loan terms from multiple lenders is the best way to save money on an investment property mortgage. You should also confirm the lender’s qualification guidelines including maximum loan-to-value (LTV) ratio as this is another important consideration when selecting a lender.
Property Type. Non-owner occupied mortgage terms may be different depending on the property type and the number of units in the property. Lenders may provide better pricing for one unit residences and duplexes in certain situations. Additionally, if you are doing a cash out refinance, the maximum mortgage amount varies depending on the number of units. While the property's cash flow characteristics and your down payment remain key factors in determining non-owner occupied mortgage rates and fees it is important to review the property you are financing with the lender before you submit your application. The more information you provide to the lender upfront, the more accurate your loan terms will be.
The interest rate for a mortgage on a non-owner occupied or investment property is usually 0.250% - 0.500% higher than the rate on a property you live in. Additionally, closing costs for non-owner occupied mortgages, including the appraisal report fee, are also usually higher. Please note that properties that you buy to earn rental income are considered non-owner occupied properties whereas second homes and vacation homes are considered owner occupied properties.
Lenders usually require that borrowers contribute a down payment of 20% - 25% for mortgages on non-owner occupied properties, which means your loan-to-value ratio is 75% - 80%. Additionally, investment properties are not eligible for most conventional or government-backed low or no down payment mortgage programs.
For non-owner occupied mortgages, lenders require that borrowers maintain a certain amount of money in reserve at the time your mortgage closes. The reserve requirement is six or twelve months of total monthly housing expense depending on your debt-to-income ratio, credit score and the type of loan. Additionally, if you own a second home or other investment properties you are required to hold additional reserves. The more properties you own with a mortgage, the higher the reserve requirement.
The interest expense mortgage tax deduction does not apply to investment properties which is different than an owner-occupied mortgage. The good news is that mortgage interest, property tax and maintenance costs are deductible against rental income generated by the property which lower your taxable income. Borrowers should contact a tax specialist or accountant to review how tax guidelines apply to investment properties and non-owner occupied mortgages.
When you apply for a non-owner occupied mortgage, having at least a one year track record as a landlord is a significant advantage. Lenders prefer applicants that have a history of successfully managing properties and understand the unique costs, risks and responsibilities that come with owning an investment property. This applies whether you are buying an income property for the first time or refinancing. Once you have established your landlord qualifications for at least one year, it become easier get approved and you may even be eligible for lower non-owner occupied mortgage rates.
Calculating the income for a rental property may seem like a pretty straightforward exercise but like most thing related to the mortgage process it is relatively complicated. If you are buying a property and have less than one year of experience receiving rent or managing rental properties, there may be a limit to the amount of rental income that is included in your loan application. In this case you may be required to qualify for the loan based your own income as well as you monthly debt expenses, including the rent or mortgage payment on the home you live in. If you have at least one year of experience receiving rent or as a property manager, lenders use 75% of projected property income according to a rental appraisal or 75% of the income from a signed lease agreement, and there is no limit to the rental income added to your application. If you a refinancing a property and can provide at least one year of tax returns to verify the current rents then lender usually use the income figure according to your Schedule E to qualify you for the loan. Given the complexity and different methods involved it is important to understand how a lender calculates rental income before you apply for a non-owner occupied mortgage.
Conventional non-owner occupied mortgages apply to one-to-four unit rental properties. Properties with more than four units usually require a commercial loan which has significantly different terms, qualification requirements and conditions. Additionally, the number of properties you own is also a consideration with most lenders providing standard non-owner occupied loans on a maximum of eight properties owned by the same individual. Borrowers should check with lenders to understand how property type and the number of properties they own impacts their ability to qualify for a mortgage.
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Non-Owner Occupied Mortgage Guidelines: https://www.fanniemae.com/content/guide/selling/b3/3.1/08.html