Q: I am currently living near Knoxville, TN. My question is about the purchase of an investment property. I can’t seem to find a loan for it right now. I know the money is out there but my credit score is only 641. This seems to be a problem. The lenders I have spoken with will not lend to me unless I put 20 percent down in cash.
The sales price is $124,900 and the building, which is a 4-plex, has income of $1,375 a month. The cash flow is there but I can’t get any money to buy the building. Am I crazy?
A: We’re living in strange mortgage times. To borrow cash these days for an investment property, you may need to put down a substantial amount of money in cash. Most lenders aren’t doing these loans unless you have a big cash down payment and you have stellar credit. Unfortunately, a credit score of 641 doesn’t quite qualify as “stellar.” You would need for your credit score to be in the upper 700s.
Unless the seller agrees to finance your purchase, you may not be able to buy the property right now. You might see if the seller will take back a mortgage for the property. As an example, a $125,000, 30-year loan at 8 percent would cost you $917.21 per month. With an income of $1,375 per month ($16,500 per year), you should be enough to pay for the mortgage, taxes, insurance and any repairs the building needs. Remember that you will probably have some vacancies in the property each year, and you should budget for that as well. Your seller may like earning 8 percent on his or her money and know that the security for the loan is a familiar building.
If you’ve already shopped around for a mortgage without any luck, seller financing might be your only option — unless you can get someone with a better credit score to purchase the property with you.
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