Investor FAQ
Paul Lamnatos
At Blink, we pride ourselves on being available 24/7 to answer questions for Real Estate Investors, whether seasoned pros at investing or brand-new investors with unique questions. We recently got this question, and in 17 years in the business, I think this was a first, yet a very important question, so read up.
Question 1: How does purchasing an investment home before purchasing my primary home impact my primary home loan options?
Answer: In short, this likely won’t affect you. Why? As a first time homebuyer your main advantage is having access to loan programs with as little as 3% down. Not a better rate, not lesser loan qualifications, simply access to a lower down payment which includes Private Mortgage Insurance (PMI) and due to the lower down payment the PMI is more expensive than if you were to put down 5% – 15% and of course 20% down eliminates entirely.
Investment properties require a minimum of 15% down and you’ll really want to put 20% down to avoid the expensive investment home loan PMI.
Couple this with the fact that your current liquid assets are more than 20% down payments for both your primary home loan and your investment home loan(s). All of a sudden putting down the minimum 3% for a first time homebuyer becomes a moot point and not a very attractive option as you have the means to reduce your PMI should you chose to put less than 20% down.
All this on top of the fact that you more than Income Qualify for both loans without the need of the rental income from your investment property to offset the investment home loan payment and you are free to do what you like. You’re in charge of how you want to do this – you can either buy the investment property first, then your primary home or vice versa.
If this were not the case with your finances, then you would want to buy your primary home first and then your investment property. Because until a ‘borrower’ owns their own primary home they are unable to include rental income to qualify for Conventional financing unless they have 2+ years of landlord experience. It can get tricky, that’s why Blink is here to help.
Question 2: My husband and I do not currently have any mortgage loans, is it better to have both of us on the mortgages or just one of us?
This depends if you ever anticipate owning rental properties. Silly question based on the above question, but I thought the information would be useful.
If you don’t plan to own any rental properties, I’m a fan of both spouses being on the loan. The main reason being if either of you ever have questions, you’ll both be able to call your servicing company (servicing is referred to the division of the mortgage company that facilitates loan payments) without the other (spouse) having to grant permission via forms and authorizations. Plus you both get credit for the home loan, which over time impacts credit scores in a positive way.
If you do intend to own rental properties in the future, I highly recommend you and your spouse’s primary home (and all other loans) loan be in only one of your names.
This has to do with future loan qualifications and more importantly your/a borrowers Debt To Income Ratio (DTI). Whether it be a big Wall Street or government backed bank, a federal credit union or a local independent mortgage company like Blink Lending, any lender who offers Conventional financing must play by the same set of core rules and guidelines set forth by Fannie Mae and Freddie Mac (mom and dad of Conventional lending if you will).
The 3 main components of Conventional borrower loan qualifications consist of Credit, Assets and Income, DTI Ratio is the Income qualifying portion of the loan process.
So what does this all mean?
The home you live in is counted as part of your Debts along with the accounts that report to your credit and any court ordered payment(Child Support) and the higher your Debts as a ratio to your Income, the less likely you are to be approved for a loan, especially when your DTI is >50% as it becomes a hard no.
So when the time comes and you and your spouse apply for your investment home loan, your primary home loan would show up on both of your credit reports therefore impacting both of your DTI ratios, versus just one. Now insert this little trick you have learned and only put one of your names on your primary home loan and when the time comes to buy an investment property, you can put the investment home loan in the other spouses name as the primary home loan liability will only impact the spouse whose name is on the primary home loan and not the spouse’s DTI who is purchasing the investment property.
Worried About Ownership Rights?
Don’t be, especially if you live in Texas, which is a community property state meaning whether a spouse in on the primary home loan or not, both spouses own equal 50/50 of the property and their ownership rights are fully protected under Texas state law. That means one spouse is liable for the debt while the other has equal control of the asset, which is pretty sweet for the spouse not on the primary home loan.
Plan To Buy Multiple Investment Properties?
That’s easy enough. Simply rinse and repeat the process by strategically placing your next investment home loan(s) in one or the other spouse’s names only, rather than sign jointly. Unless needed for loan qualifying purposes of course, for example, both spousal incomes are needed for the DTI ratios to be <50% as one spouses income alone does not meet the <50% DTI ratio requirement. By strategically placing your next investment home loan(s) in only one of your names you are not only limiting your current and future qualifying DTI ratios but you are also and more importantly able to maximize your Conventional loan limits of 10 financed properties. This is extremely important to all landlord real estate investors.
If that was confusing, don’t worry, that’s why we’re the experts and happy to help. The Blink team has helped hundreds of real estate investors in the Houston area, and we look forward to helping you too. Feel free to contact us.
At Blink, we are proud to offer both short term Private Money Loans and long term Conventional Loans. Whether you are looking for a quick rehab loan or a traditional 8 – 30 year fixed rate mortgage, we are confident we have a loan program that aligns with your real estate investment strategies.
