How do mortgages on rental houses differ from a mortgage for your primary residence?

• "Cash is King" Simply stated, the more money you put down the better deal you will get. 20 percent is the magic number. If you are short on cash, try to get an equity line on your primary residence. It's a cheap way to come up with the needed funds. If that is not an option, request a piggyback 2nd mortgage on the new purchase. That will save you from the dreaded mortgage insurance premium. Lastly, there are 100% investor programs available. Just make sure that the added cost of these loans is figured in your financial analysis.



• Credit is much more important in seeking investor home financing. Even though your primary home mortgage sailed through without a hitch, you should still review your credit report and make sure that all issues are resolved ahead of time.



• When searching for a property, keep in mind that mortgage companies lend on the LOWER of the sales price or appraised value. If you are seeking a program that requires a 20% down payment for a house you are purchasing for $100.000, the down payment would be $20,000, even though you may have found a bargain that appraises for $150,000.



• Most lenders will require that the house is in move-in condition and that there are no major repairs necessary. This can get sticky if you find a great deal on a fixer-upper. The seller will want to sell the house "As is" and you will of course not want to spend money on a house that you don't yet own. Specialty rehab loans are available, but at higher rates and fees.



• Some buyers like to purchase properties quickly with cash and then seek financing afterward to get their money back out of the deal. The important point to keep in mind is that most lenders will only lend based on the purchase price. To take advantage of the appraised value, you will need to wait one year. This is called "seasoning" the property.