If you buy an investment property, the possible future rental income of the investment property will be included in the available income. The calculation is to multiply the rent by 75% and then subtract the monthly payment of the investment property. If the remainder is a positive number, add it to the denominator. ; if it is a negative number, it is added to the numerator. Therefore, sometimes you may find that you can even get approved for a higher loan amount if you buy an investment property directly.
2. How much is the down payment required? Are there any additional requirements?
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The minimum down payment for buying an investment property is 20%, but in addition to the down payment and closing costs, the loan application for an investment property also requires a cash reserve (Reserves), and the amount requirement is 6 months of PITIA.
What is PITIA?
PI = Principal & Interest, mortgage
T = Tax, property tax
I = Insurance, insurance
A = HOA, management fee
So PITIA refers to the monthly amount of mortgage, property tax, insurance and management fees.
3. Quickly calculate how much you can borrow
Before taking a loan, many people will ask: How much can I borrow? There is a simple algorithm. Before submitting it to the bank for review, you can calculate how much you can borrow. The bank also calculates roughly like this:
Mortgage + property tax + insurance + HOA + car loan + minimum credit card payment ≤ 50% of pre-tax monthly income
For example, an applicant wants to buy a house worth RMB 800,000 and wants to see if he can get a loan of RMB 600,000. Assuming that the interest rate he can get is 4%, then the monthly payment will be $2,864.49. Local tax banks generally charge 1.25%/ Calculated in years, that’s $833.33 per month.
Assume that house insurance is $100 per month, HOA is $300 per month, car loan is $300 per month, and the minimum payment on several credit cards is $100, then the total cost of all expenses is $4,497.82/month.
Also assuming that the applicant’s annual income is $120K, then one month is $10K.
Therefore, this percentage is 4497.82 divided by 10000, which equals 44.97%, which is less than 50%, so this is the income he probably needs. You can follow this method to simply calculate how much loan you can borrow.
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