Financing Rental Properties

Many investors are now finding that rental property can be an excellent way to create wealth. If you are considering getting involved in rental property investing, it is a good idea to educate yourself as much as possible. First, you need to find out what it takes to become qualified to purchase investment property because it is actually somewhat different than becoming qualified to purchase a regular home. 

One of the reasons for this is the fact that a significant number of investors either walked away from properties or declared bankruptcy during the early 1990s. While you should certainly not be punished for someone else’s problems, neither do lenders want to be left holding investment properties. Therefore, it is important to understand that the requirements for being approved for a mortgage on rental properties are somewhat different from what you may be accustomed to. 

There are many different sources you can tap into for possible financing. These options include:

·          Mortgage broker

·          Local savings and loan or bank

·          Private lender

·          FHA (Federal Housing Association)

Regardless of which option you choose, you will find that most lenders will want to be assured that you will have a sufficient amount of rental income in order to cover not only the mortgage payment but also other expenses such as insurance, taxes and maintenance. Depending on the amount of income that will be provided from the property, some lenders may require a larger down payment.

There are also different types of loans which you can use to finance the purchase of a rental property. One option would be a residential loan. This type of loan can be used to purchase from one to four units. The exact options that are open to you often depend on whether the property will be owner occupied.

Another option would be a commercial loan. This is an option when the property is five units or more or it will be non-owner occupied. Due to the fact that it is a commercial loan, it is often far different from a residential loan in regards to terms and requirements. One of the main differences between a commercial loan and a residential loan is the fact that fees and rates are frequently higher on a commercial loan. A larger down payment is also often required. The down payment on a commercial loan typically runs between 25% and 35%.