There is a lot that goes into getting approved for a loan. In addition to strong credit, low debt and high income the amount of down payment varies on the type of property you are buying. The down payment needed for a commercial property will not be the same as a single family home. Sometimes this can be as much as a 30% difference. There are also subtle differences in the type of documentation needed and even how the loan is underwritten. Before you start your property search it is important that your preapproval match the type of property you are interested in.
Different property types carry different risks for lenders. The most common purchase type is a single family property. There is a wide variety of loan programs aimed at attracting a single family home buyer each with different down payment amounts and even credit score. Most of these programs are good for one to two unit properties and some even for condominiums. Condominiums have specific underwriting items that are unique to them. There must be a certain percentage of owners living in the properties and the association must carry a minimum amount of insurance. This can change from complex to complex.
Three and four unit properties carry their own set of guidelines. Even if you plan to live in the property the down payment amount will be higher and the credit score requirement stronger. Once you go over four units you enter a new category of commercial properties. Commercial properties require anywhere from 25-30% down payment and have a different set of underwriting criteria. Instead of focusing solely on the borrower the subject property is an important underwriting factor. Things like the amount of rents received, total housing expenses and even property depreciation are considered.
The investor loan market has undergone sweeping changes over the past five years. Most non owner occupied programs require a credit score in excess of 700. You may also need additional reserves and a substantial down payment. The same is the case if you are looking at a vacation home or any other type of second property regardless of the number of units. You can expect the underwriting to be more difficult and the process slightly longer. Also, the guidelines for loans in one state may not be the same for the next state over. Even if they are the same the interest rates can be different.
It is important to know what is required for each different property type you are considering. Something as seemingly innocent as switching from a single family to a two family property can completely change the approval. The same is the case if the property is located outside a certain zip code or the makeup of owners in a condominium changes. Before you consider an offer make your loan representative aware of even subtle changes to the property. Any changes to the property may require a change in not your pre-approval but the remainder of the loan process.