Financing Options for Your Rental Property

Financing-Options-for-Your-Rental-Property

Renting property is proving to be a great way to make money. It is worth learning as much information as you can about rental property investment. You need to learn what it takes to be qualified to buy investment property. It is quite different from buying a home.

This is due to the fact that many investors have either left their properties or declared bankruptcy in the early 1990s. Although you shouldn’t be held responsible for the actions of others, lenders don’t want to see investment properties left unattended. It is important to know that approval for a mortgage for rental properties may require different requirements than what you are used to.

A minimum down payment is not required to buy a home, particularly if you’re a first-time buyer. A minimum down payment of 15% is required by many lenders.

You have many options for financing. These sources include:

  • Mortgage broker
  • Savings and loans to local banks
  • Private lender
  • FHA; Federal Housing Association

No matter which option you choose to go with, most lenders want to see that you have enough rental income to pay your mortgage payment and other expenses like taxes, insurance, and maintenance. Some lenders may require a higher down payment depending on how much income you will receive from the property.

You can also use different types of loans to finance your purchase of a rental home. A residential loan is one option. You can use this type of loan to buy one to four units. There are many options available to you, but it is important to consider whether the property will be occupied by an owner.

A commercial loan is another option. If the property has five or more units, or if it is non-owner occupied, this is an option. It is usually a commercial loan and has different terms and requirements than a residential loan. A commercial loan has fees and rates that are often higher than a residential loan. This is one of the major differences. A higher down payment is often required. A commercial loan usually requires a down payment of between 25% and 35%. Although some lenders may agree to a higher loan-to-value ratio, the criteria for these loans are more stringent. The ability of the property’s cash flow to pay back the loan will be carefully examined by the lender. The lender will usually inspect the property to see if it is capable of producing enough income to pay off the loan.

Many potential investors also have the option of private party lending. You can approach the owner to discuss seller financing. This option allows the owner to carry back the loan, paying a fair interest rate and a down payment. These options may allow you to save on lending fees and make a smaller downpayment.

A hard-money loan is another option. This type of financing is short-term and allows a third party to lend money to the investor to help them purchase the property. This type of loan usually has a higher interest rate because the buyer does not have good credit or the property needs extensive renovations.

Traditional lenders often offer FHA programs. FHS doesn’t lend money, however. FHS does offer insurance to lenders and a variety of loan programs.

No matter which financing option you choose, there are always options to refinance later to get a better rate or terms.

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