Does anyone know how banks calculate the borrowing power for an investment property? Reason being it appears lot lower than a person's primary place of residence.
Let's say I make $80K per year, with no other debts. Most banks would allow me to borrow about $450K, which equates to about $3000/mo, or $700/wk in mortgage, at ~6% over 25 years. Now, if my IP also generates about $700 per week in rental income, plugging this amount into banks' calculators only increase the total borrowing power to about $650K (or about $4200/mo in mortgage payment); a difference of only $200K. Why does my PPOR affords me to borrow $450K versus only $200K for the investment property, given that they are the same monthly payment amount of $700 each?
Granted, banks do consider expenses associated with running an IP, however, even if I were to factor for example $100/week in expenses, the rental income of $600/wk should allow me to borrow way more than $200K for IP.
Thoughts?
Granted, banks do consider expenses associated with running an IP, however, even if I were to factor for example $100/week in expenses, the rental income of $600/wk should allow me to borrow way more than $200K for IP.
Why?
For a quick calculation your 80k gave you power for 450k approx. 5.5 times
your investment is 35k and at 5.5 times approx. 200K
I was told when I went for my loan they took 80% of the rental income as there maybe times when your unit is vacant.