Consumer lending is based on your personal income and the size of your other debts. A real estate investment stands on its own feet. If the anticipated income from the property will meet the mortgage payments, operating expense, plus a little extra for surprises, you will qualify for the loan. If you wish to buy properties and flip them, you must have a realistic budget for necessary expenses until the resale and identify a source for the money to pay those expenses. If the money will come from borrowed funds - because you borrow enough to buy the property and to meet the expenses - then your personal lending credit limit does not matter. This concept is at the heart of private individuals' ability to invest in real estate.
Experienced investors with a good track record or people with substantial liquid assets (cash, stock, and bonds) can often borrow 100% of the purchase price of property. Unless you are buying a fixer-upper or a personal residence, you will usually be able to borrow no more than a certain percentage of the purchase price of the property or the appraised value, whichever is less. That percentage can be 75% or 80%, depending on the lender and the property.
Here is an example of the "whichever is less" trap: You find a rental house with an appraised value of US Dollars 100,000. Because the owner needs cash immediately, however, she is willing to sell it to you for only US Dollars 75,000. If the lender has a 75% loan policy, you might think you can borrow the entire purchase price of US Dollars 75,000 because it is 75% of the US Dollars 100,000 appraised value. But, the lender will base its decision on 75% of the purchase price, giving you a loan of only US Dollars 56,250.
Generally, you should borrow the maximum amount possible within certain limitations. Do not borrow so much that it causes your loan to have a higher interest rate. Often, the less equity you have, the higher your interest rate will be. Think about the monthly mortgage payments and your ability to make them if your property is vacant. Try to borrow no more than what will result in mortgage payments you can meet for three or four months, even with no rental income.
For the beginning investor, the typical-size loan can be handled by the local branch of the financial institution that handles your checking or savings account. All lenders have differing rules for the size transaction loan officers can handle. These are called delegations of authority. A branch manager might have authority to make a loan up to US Dollars 75,000, the citywide commercial loan officer might have authority to make a loan up to US Dollars 250,000, and all loans over that might need approval from the regional office.
Be sure to visit your own financial institution, and three or four others that have good reputations. Ask each of them, point-blank, "What are the approval limits for different sizes of loans?" It is always surprising to people, but a beginning investor, with a good reputation among the local population, might find it easier to borrow money from a different bank. That is because the other bank might have local loan approval authority, while the investor's bank might need to obtain approval from a regional office.
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