When it comes to financing a rental property, conforming loans, which are loans that meet the criteria set by Fannie Mae or Freddie Mac, often are the most affordable option. However, they are not always the easiest to qualify for and have strict eligibility guidelines. Here are five times when real estate investors would not qualify for a conforming loan:
They own 10 or more mortgaged rental properties.
- To be eligible for a conforming loan, you must have less than 10 mortgaged rental properties. Visio Lending, on the other hand, has no limit of number of mortgaged rental properties.
Their Debt-to-Income Ratio (DTI) is greater than 45%.
- Borrowers looking for a conforming loan must have an income that is at least 55% higher than all their debt. For investors with multiple mortgages, this can be extremely challenging. That is why Visio Lending uses Debt-Service Coverage Ratio (DSCR) instead of looking at the borrower’s income.
They are looking to finance through a corporate entity.
- Conforming loans can only be originated in the personal names of investors. For investors wanting to protect their assets under an LLC, Visio Lending lends to corporate entities.
They have less than 6 months of financial reserves.
- For borrowers with extremely high credit, for a conforming loan the minimum number of financial reserves is six months. For borrowers with lower credit, the minimum amount of financial reserves with Fannie and Freddie is 12 months. Visio Lending only requires 3 Months PITIA (Principal, Interest, Taxes, Insurance and Association Dues).
They cannot document income.
- For self-employed borrowers without regular pay stubs or proof of income, it is nearly i possible to qualify for a conforming loan. That’s why Visio Lending does not require income statements or tax documentation, and instead looks at the cash flow of the property.
To learn more about your financing options for a single family residential rental property, see our blog post "Loan Programs Available for SFR Properties." To learn more about our loan programs, contact us.