What are Investment Property Loans?
When an individual purchases property that will not be used as a place for residence, but rather for profit, the property is considered an investment property. It can be very expensive to personally fund these real estate investments, especially for beginners who often do not have the funds to pay off an investment property fully. Because of this, these investors need to obtain funding for other sources. They can use investment property loans in order to avoid going into their own funds.
Investment property loans can be used for different types of investment properties such as:
Short term rental properties: These properties are often used for vacations.
Long term rental properties: These properties are often rented out by individuals who do not have the financial steadiness to own a home.
A home near the individual’s primary residence: This home is not purchased with the intent to be resold or rented out.
What Affects the Rates of Investment Property Loans?
There are many different factors that can affect the mortgage rate for the investment property loan.
Investment property loans that do not have a down payment in the contract are also known as an 100% mortgage. While there is no initial down payment, these loans may have a higher interest rate.
The location of the rental property greatly affects the rates of investment property loans. If the property is within a good neighborhood that also has low vacancy rates, the lender assumes that the individual receiving the loan can follow the payment schedule, which allows the lender to give a lower rate.
If a rental property already contains a tenant who is dependable and who pays a monthly rental amount that is greater than the mortgage payments on the property, a lender is more inclined to give a better rate. When a house must be fixed up before reselling, the lender must be assured that the individual can do the repairs while making the monthly payments when the home has not been sold.
How to Get Investment Property Loans
The first step in investment property loan shopping is to just look around and get an idea of the interest rates in investment property loans. Doing so can help ensure the best deal as well as improve chances of getting approved.
Next step in getting investment property loans is to simply apply. After finding a lender, they will give a loan application that requires certain pieces of personal information. This application will then be verified. The lender will often look at a credit report and income or even how much cash the individual has on hand.
Finally the lender will make sure that the individual has enough cash for the down payment. Most investment property loans usually ask for at least 25% for this down payment, although some request up to 35% due to the riskiness of investment property loans.