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 maximum number of financed properties Fannie Mae allows a single investor to have while still qualifying for conventional financing?
Answer: 10
Fannie Mae allows investors to finance up to 10 properties simultaneously, though requirements become stricter after the 4th financed property.
When a lender 'impounds' taxes and insurance on an investment property loan, it means:
Answer: Monthly payments include a portion held in escrow for tax and insurance bills
Impound (escrow) accounts collect monthly installments alongside the mortgage payment so the lender can pay property taxes and insurance when due.
Which financing structure is MOST appropriate for an investor purchasing a 12-unit apartment building?
Answer: Commercial multifamily loan
Properties with 5+ units are classified as commercial real estate and require commercial multifamily financing rather than residential loans.
What is 'cross-collateralization' in investment property financing?
Answer: Using one property's equity as collateral for a loan on a different property
Cross-collateralization links multiple properties as security for a single loan, meaning a default on one loan could put all pledged properties at risk.
An investor is considering a 5/1 ARM for a rental property. What happens after the initial 5-year period?
Answer: The rate adjusts annually based on a benchmark index plus a margin
After the 5-year fixed period, a 5/1 ARM adjusts the interest rate every year based on a market index (e.g., SOFR) plus the lender's margin.
Which metric do commercial lenders primarily use to evaluate multifamily loan applications?
Answer: Net Operating Income relative to debt service
Commercial lenders focus on Debt Service Coverage Ratio (NOI ÷ annual debt service), requiring a minimum of 1.20-1.25x to ensure the property generates enough income.
A real estate investor uses a 'subject-to' deal. What does this mean?
Answer: The buyer takes over the seller's existing mortgage without formally assuming it
In a 'subject-to' transaction, the buyer takes title to the property while the existing mortgage remains in the seller's name, carrying the risk of a due-on-sale clause trigger.