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Understanding the 5 to 10 Property Financing

Understanding the 5 to 10 Property Financing

If you intend to have a string of rental properties to ensure that you continue enjoying a good life even after retirement, you will be happy to know that there is a 5 to 10 property financing plan that seems to work very well. However, research is paramount. Know as much as you can about it first.

Why most lenders are skeptical about 5-10 property financing

Lending institutions are cautious about 5 to 10 property financing goes. They place restrictions on this, tougher than in the ordinary mortgages and loans. While underwriting a 5-10 property financing mortgage application is quite a hassle; many conventional lenders are now ready to finance investors buying more than 4 properties.

Unlike the other mortgage applications that require just a pay stub and W-2, the 5-10 option requires an investor to furnish the lender with detailed tax returns, intensive REO timetable and a complex detail for every home underwritten. The paperwork is also intense and complicated.

The approval process takes longer than when you are trying to have the mortgages and loans for a single property approved. There is a lot of paperwork of course and so the lengthened process is to be expected.  

While your lender may not easily offer you a mortgage on the 5-10 property financing, it surely can be done. However, property investors with four homes and beyond can have mortgages attached and if they wish to refinance any or all of the homes, they might want to look for other options. 

If all else fails, an investor should try the lease purchase option. This type of agreement makes it easier for the investor to lease a purchase agreement and provide the lending institution with an equitable title for the property in question. 

The 5-10 Property Financing Criteria

For one to get mortgages and loans for 5 to 10 properties, they would have to meet the set criteria. It includes: 

• Purchase: note that 1-unit down payment goes for 25% while anything beyond 2-4 units demands a 30% down payment.

• The credit score should be no less than 720

• Refinance: all property options demand for an equity of not less than 30%

• All the financed properties should have at least PITI (principal, interests, taxes and insurance) reserves of up to 6 months on individual financed properties

• An investor must have not less than 5 residential estates with independent financing

• There must be no history of foreclosures or bankruptcies in the past 7 years

• An investor must have a record of tax returns of not less than 2 years from all rental estates

• A property owner must not have been late with mortgage payment for the past 12 months

A good number of seasoned investors opt for foreclosed property, vacant rentals and multi-unit estates as a way of amassing wealth in the long-term. While there will be many turn-offs in the search for financing for more than 4 properties, there is still hope and investors should not turn away at the first denial of the mortgages and loans. Instead, they should try their luck with various lending institutions. 

Every day, more lenders are embracing the 5-10 financing option. It is only a matter of time before getting financing for 5 to 10 properties becomes just an ordinary process.

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