What goes into the payment
Lenders and investors talk about PITI: principal, interest, taxes and insurance. Add HOA dues where they apply and you have the amount that leaves your account each month whether or not the property is rented.
Principal and interest come from the standard amortization formula and stay fixed for the life of a fixed-rate loan. Taxes and insurance do not; expect them to rise over time.
How investment loans differ
- Down payment. Conventional loans on rentals usually require 15% to 25% down, compared with as little as 3% to 5% for a home you live in.
- Rate. Expect a higher rate than on an owner-occupied loan, often by half a point to a full point.
- Reserves. Lenders commonly want to see several months of payments in the bank.
- DSCR loans. Some lenders qualify the property rather than you, based on whether the rent covers the payment.
The payment is not the whole cost
A rental that brings in exactly its PITI is losing money, because repairs, vacancy, capital expenditures and management come on top. To see whether the rent actually covers the property, run a full rental analysis.