Investment Property Loans: What You Should Know

Additional income can be obtained from renting an apartment or house. But to buy real estate, you will rent out; you need a significant amount of money. In this case, lending will help. But it is worth knowing the requirements for investment property loan. Plus, investment property loans have higher mortgage rates. We advise you to familiarize yourself with our material to choose the best loan option and be ready for all the requirements from creditors.

What you need to know about real estate loans for investment

An investment property loan is a loan to buy a house that will bring in money. It can be either a rental or the restoration of an old building with the subsequent sale. For the second case, there are short-term loans. Thanks to it, you can quickly complete the necessary repairs, sell the house and get an investment.

Taking out an investment home loan means you won't be living in the home. However, it is possible to use traditional lending to purchase an apartment building. In this case, the main loan requirements for investment property include the house owner's mandatory residence in one of the apartments.

Investment real estate: what is it?

Everything is simple here. An investment property is a property that brings you income. It can be both a small house outside the city and a building with many apartments in the center of the metropolis. A conventional loan investment property applies to four types of housing:

  • condominium;

  • mobile homes;

  • apartment buildings;

  • cooperatives.

Types of lending for investment real estate

There are several options for programs with which you can purchase investment properties:

  • standard lending. It is a regular loan for the purchase of real estate. It is essential to check whether there are a requirement for an investment property loan;

  • a loan from the Federal Housing Administration. This option allows you to buy a house with two, three, or four apartments. But keep in mind that you must live in one of them for at least a year;

  • loan for the military. Financial assistance enables the purchase of housing for investment. You can buy up to 7 units, but you must live in one of them;

  • non-qualified mortgage loan. An option for borrowers who do not meet the previous investment property loan requirements. In this case, be prepared for high stakes;

  • own financing. In some cases, the real estate seller can act as a creditor. It is necessary to make a significant amount in the form of the first payment and pay off the balance before the set deadline;

  • secured loan. In this case, you leave the property as a guarantee for the price of the loan;

  • hard money Some lenders are ready to provide funds for real estate reconstruction. You will have to make a sizeable down payment and pay high rates.

Requirements for providing an investment housing loan

They believe that a loan for investment housing is riskier. Therefore, it is worth learning how to qualify for an investment property loan and the main requirements for the borrower. The main conditions include:

  • large down payments. General rules allow you to pay 15% of the loan amount. However, some lenders may require up to 20% of the amount;

  • availability of reserves. Your account should have an amount equal to 2-6 monthly mortgage payments;

  • confirmation that the real estate generates income;

  • history of property management

  • high credit rating

If you want to get funds for investment real estate, you should learn how to get a loan for an investment property directly from a lender. So you will know what documents are needed and will be able to navigate the terms of lending.

Peculiarities of issuing a loan for the purchase of investment real estate

If you are interested in how to get an investment property loan, we recommend that you familiarize yourself with the stages of the procedure:

  • choose a lender with favorable conditions;

  • fill out the questionnaire;

  • provide asset information;

  • make a deposit to pay for the property appraisal;

  • complete the final application;

  • withdraw the funds.

Before making the final application, carefully review the contract, and check all data and figures. Don't hesitate to ask lenders questions. You must understand all the intricacies of lending, repayment terms, and other points.

When taking out a loan to purchase investment housing, be prepared that the rates will be higher by 0.5-0.8%. Therefore, it is worth working on the credit rating—the higher your score, the lower the bid. Accordingly, you will overpay less money. You can also pay 20% or more interest to get a great deal.

The cost of the assessment depends on the type of housing. Evaluating a house takes less effort and time, so it will be cheaper than designing an apartment building. You can use the estimate to determine the rental price of your home.

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