For Sale by Owner Investment property

[Jasmine Claye]

what is the best way to handle a for sale by owner purchase? I am interested in buying an investment home using bank financing which I am sur the bank has certain requirements that need to be met before lebdibg tbe funds. What are these requirements? What steps do I need to take to make sure I am covering the important factors in getting the home at a good deal without anything coming up after purchasing?

[Jon Holdman]

A FSBO isn't really much different than any other purchase. Just no agents involved. It doesn't affect the banks requirements.

Banks have three basic requirements for an investment loan:

1) credit score. Exact requirements vary, but 720+ should be OK

2) cash. You will need at least 20% down, though I spoke with a lender a couple weeks ago who said 15% was possible, but with PMI. And you will need cash reserves. Six months PITI for the new property, two months for existing properties as long as you're below four mortgaged properties. For 5-10 mortgages properties its six months PITI for all properties.

3) income. You will need to have income to support the loan. Rental income will only be included if you have two years landlording experience.

Details vary, and you may find a lender more flexible than these requirements.

As far as the property, value is key. You don't want to pay above market just because its a FSBO. The lender will require an appraisal, so that will give you confidence you're not over paying.

As far as profitability, that's just a matter of math using the price you're paying, the loan terms and the rent.