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All you need to know about how to finance an investment property
Do you have an eyeball on a New York investment property, but need a little help to make your dreams come true? If you own or have owned an investment property in New York, the ownership of an investment property is slightly different here. Similarly, getting a mortgage on an investment property is different from getting one for a home that is your home address.
"Under the assumption that the property has enough rental, interest rates are still low enough to make investment property finance an appealing proposition," says Robbie Gendels, New York City Branch of the National Cooperative Bank's Senior Credit Offeror, who, unlike many other financial institutions, provides investment credit for cooperatives, condominiums and single-family houses.
Here's what you need to know about getting a mortgage on an investment property: Feds do not support investment property mortgage lending, which means you have to look around for creditors who lend in their own accounts. Gendels says these so-called portfolios are unlikely to be available at set rates, so you are likely to be given a 5/1, 7/1 or 10/1 variable interest mortgage (ARM).
This means that interest rates either stay for five, seven or ten years and are then adjusted up to a certain annual interest level. As a rule, there is a defined spread (e.g. 3 per cent above the LIBOR interest level with an upper limit of 5 per cent above the original interest rate). For example, the National Cooperative Bank currently offers an interest of around 3.75 per cent for a 5/1 Asset Liability Management (ARM), 4 per cent for a 7/1 Asset Liability Management (ARM) and 4.625 per cent for a 10/1 Asset Liability Management (ARM).
After the first five or seven year term, you can make your adjustment annually at LIBOR plus a spread (e.g. 3 percent) and no more than 5 percentage points above the base interest level. When you buy a cooperative or condominium, at least 30 per cent of the property must be owned by the owners.
Actually, this is a lower level than the 51 per cent required to obtain a state-guaranteed mortgage. It is unlikely that you will be able to finance your next investment if you already own many shares. The National Cooperative Bank, says Gendels, has an upper limit of 10 investment finance entities. Mr Robbie Gendels (646-201-4713) is Deputy Chairwoman and Mortgage Maker of the National Cooperative Bank in Manhattan.