Investment Property Financing Flashcards
7 cards from real Real Estate Investing practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Property Financing flashcards as text
What is the primary advantage of using a portfolio loan for investment properties?
Answer: The lender keeps it in-house, allowing more flexible qualification criteria
Portfolio loans are kept on the lender's books rather than sold to the secondary market, giving lenders flexibility to set their own underwriting criteria.
An investor refinances an investment property to pull out equity without selling. This strategy is called:
Answer: Cash-out refinance
A cash-out refinance replaces an existing mortgage with a larger one, allowing the investor to access built-up equity as tax-free cash.
What does LTV stand for and why does it matter for investment loans?
Answer: Loan-to-Value; higher LTV means less equity and more lender risk
Loan-to-Value is the ratio of the loan amount to the property's appraised value; lenders cap LTV on investment properties (typically 75-80%) to reduce default risk.
Which statement about assumable mortgages is TRUE for investment property buyers?
Answer: Assuming a low-rate loan requires full cash payment to the seller for equity
When assuming a seller's low-rate mortgage, the buyer must cover the difference between the purchase price and the loan balance — often requiring a second loan or cash.
A lender charges 2 points on a $250,000 loan. How much does the investor pay in points at closing?
Answer: $5,000
One point equals 1% of the loan amount, so 2 points on $250,000 equals $5,000 paid at closing to reduce the interest rate.
What is the main risk of using interest-only loans to finance investment properties?
Answer: No principal is paid down, so equity builds only through appreciation
Interest-only loans keep payments low but leave the principal balance unchanged, meaning the investor builds no equity through amortization.
A 'seasoning requirement' in real estate financing refers to:
Answer: The minimum time an investor must own a property before refinancing or selling
Lenders impose seasoning requirements (typically 6-12 months) to prevent investors from immediately refinancing a recently purchased property at a higher appraised value.