Lenders Guidelines for One-to Four-Unit Properties
By: Tilden Moschetti
For investor-owned real estate property, mortgage loan companies generally opt for stricter and more rigid risk assessment criteria. This is due to the higher default ratio in any real estate transaction and negotiation where such is involved.
If you are planning to buy or sell real estate property, there are several factors that you must consider before finalizing a real estate purchase. This includes looking for a qualified home inspector, proceeding with a home inspection, dealing with appraiser fees, and working with real estate appraisal. When you negotiate, any action done should be pursuant to state law on landlord and tenant relations. A real estate business lawyer can help discuss this further.
Real estate transactions and brokerage for one- to four-unit properties
Many real estate agents and brokers are asked by home buyers and sellers for properties both under commercial real estate or residential real estate. Buying and selling real estate is never simple. Whether you are buying or selling property, you have to exercise diligence in the real estate market.
Home sellers and buyers often look into residences with one to four units for several reasons. For one, a licensed real estate agent or real estate broker can let you choose from several properties in the local multiple listing service. Additionally, there is a local market for tenants who would have wanted single-family homes but cannot afford rent payments.
With a promising real estate investment, however, are stricter lender guidelines. Creditors have learned during challenging economic times in the past, particularly when they suffered greatly from a high percentage of defaulting or delinquent non-owner occupied loans. As such, at present, higher standards for a home loan are to be met by borrowers for a non-owner-occupied real estate investment. Among these standards is a larger cash investment.
Higher fees and interest rates
A mortgage company often charges higher loan fees and/or rates for non-owner occupied loans. The actual fee will vary, but a lender will often require aspiring homeowners (looking into a single-family or two-unit non-owner loan) an extra 1.5 points to obtain the rate that they would offer for an owner-occupied loan. A homeowner looking into a three- or four-unit non-owner loan would usually be required an additional of 2.5 points. Additionally, homebuyers would often be charged additional points for LTVs that go beyond 75%, even for a single-family or two-unit real property.
Loans concerning real estate and higher down payments
All real estate transactions require a down payment, and these are usually significant amounts of money. This is especially true for non-owner loans for one to four units, where a minimum down of 20% or even 25% is required. Paperwork can also be more complex. Some can find a creditor offering 10% for one- to two-unit properties, but such can be very rare. In most cases, it is helpful to get legal advice from a hands-on Calabasas real estate lawyer early on.
Liquid reserves involving real estate
Aspiring real estate property owners are usually required liquid reserves that cover PITI monthly payments for at least six months. Under the relevant statute of the landlord-tenant law, a rental property owner with up to four properties financed (including the subject), the required reserve is 6 months for the subject and 2 months for the rest (including subordinate financing). If five to ten properties are financed, the required reserve is six months for all involved property (including subordinate financing). A competent Calabasas real estate property lawyer can help explain this to you in great detail.
The need for a reliable Calabasas real estate lawyer
Real estate law can be quite confusing. Before negotiating, seek legal assistance from trusted Calabasas real estate attorneys. Get reliable legal services from real estate professionals who can explain to you escrow and closings, title insurance and property rights, homeowner association concerns, or even pertinent provisions of the real estate contract.
Consulting with law offices covering these areas of law will help you avoid any legal issues and real estate litigation. For real estate information or legal questions related to real property law and taxation, contact our law firm. Our experienced Calabasas real estate attorneys can explain the details of deeds and the real estate sales contract.
At Moschetti Law Group, our practice serves the needs of Founders by providing real estate law and real estate syndication attorney services to Founders. Whether you are the Founder of a real estate empire or building a business and need assistance with purchase and sales, real estate transactions, or real estate litigation, we serve Los Angeles County, eastern Ventura County, and North Orange County from our office in Calabasas. We also have a primary focus on helping Real Estate Syndication Founders throughout the United States with forming their syndication, understanding crowdfunding, private placement memorandums, and operating agreements.