Pre approval on investment property

[Stacia Shepherd]

My husband and I own property with my parents, this is where we live.

But my husband and I are interested in buying an investment out of state without my parents. As far as getting pre approved does the lender need to use the current property we own or can we just do it all on our own, using our income?

Thank you-Staci

[Andrew Postell]

@Stacia Shepherd the answer here is going to be dependent on what TYPE of loan you receive.  Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.

Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders. Portfolio loans can run the gambit. Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs. A mortgage broker will help with this some…but even the best mortgage brokers don’t have access to ALL portfolio loans out there.

So a Fannie/Freddie type of loan will require that your income, credit, and assets are used in your qualification.  And by assets I mean any existing assets, including properties that you own.  A portfolio loan will LIKELY not use all of those items.  I say "likely" since I can't speak for every lender here but it is pretty standard that they just use the new rental income for the property.  

Anyway, I hope all of that makes sense and helps you know that you do have choices out there.  Feel free to ask anything additional if you need.  Thanks!