Getting a loan for a personal home is totally different than applying for a mortgage for rental property as an investment. You need to know the entire process before buying a mortgage lender and a rental property.
Rental property is in high demand so investment in real estate is always a good idea to increase your monthly income. There is a huge market for rental housing according to a report from 2017. This report indicates that there is a median difference of 200,000 rental housing units between demand and supply. But the sources to pay for a rental property are the wrinkle you need to iron out.
1. Make a substantial down payment
Investment properties do not come under mortgage insurance coverage. So, a minimum of 20 % is the basic requirement to get financing from a lender. You have chances to get better interest rates if you take down payment up to 25 %.
A bigger amount as downpayment can be more beneficial or more risky, depending on how your investment turns out. The bank takes bigger down payments as the guarantee for their investment. Basically, the theory is that the more one you put down the less likely you will want to lose the investment.
Trying out a second mortgage is the only option if you don’t have money for a downpayment. However, this is a herculean task with lesser chances of success.
2. Be a “resilient borrower”
Checking the credit score is important before you make any deal. However, there are other factors that influence the lending process like the policies of your financer, ratio of loan-to-value.
You need to pay a fee if you want to maintain your interest rate in case your score is below 740. This fee goes between 0.25 to 2%. Each point in this fee indicates 1% of the mortgage. You may choose to pay a higher interest if your score is below 740.
Moreover, you will need to have reserve money to manage your expenses for a minimum of six months. It is the part of your lending equation to get the mortgage for rental property.
3. Check the local broker or bank
Try contacting the local bank if you have lesser money than the requirement of your down payment. This is a better option because a local bank has more interest to invest with local clients. They can offer you flexible payment methods. A mortgage for rental property may be an area of knowledge for any of them.
Mortgage brokers have a strong knowledge of all the loan products so you must contact them for consultation. However, check and weigh all the options before agreeing to one.
4. Try to have owner financing
Since bank loans are easy to seek, owner financing sounds a little suspicious. It is particularly shaky from the seller’s end. But the situation is changing nowadays. People find it alright since borrowers have increased the standards and the credit is limited.
Plan wisely and prepare your case skillfully if you want to opt for owner financing. You must ensure the seller that you have practical loans for your venture and you are serious for it.
5. Think out of the box
Credit cards and home equity lines of credit are good options to get some finance. If you are seriously considering a profitable property, you must try to get renovation money or down payment through life insurance policies.
There are many lending websites like LendingClub, and Prosper to help you in buying rental property. You can do the actual process of property purchasing through personal loans, private loans, or the above-mentioned sites which provide lenders to the investors.
Beware of any scam or fraud during the entire process of financing and purchasing of investment property.
You need to wait patiently for the financial gain in real estate after investing in it. Follow smart rules to invest in the property business. Take as much of a loan as you can pay easily to finance your property purchasing. Try consulting your lender for a consultation. Ask him if you could reduce the interest rate after a certain time of paying back the loan. Use your good loan history as the reason to further reduce your interest rate on the loan.