Buying an investment property requires any real estate investor to conduct a thorough research of ingredients that result in a successful real estate investment. Naturally, the real estate investor will have to figure out the financing options he/she will be able to use to make it happen. While getting a regular mortgage for owner-occupant investment properties might be easier than getting a rental property mortgage, it can be better to go for the latter in many situations.
4 factors to keep in mind when looking for a rental property mortgage
These are the factors that affect your rental property mortgage application:
Qualified properties
Many types of real estate may not work when trying to get a rental property mortgage. These often include time-shares and micro-apartments. If you’re thinking of buying a real estate investment property but you’re not sure of the nature of the loan or mortgage required to finance it, make sure to consult with a mortgage advisor or broker firsthand. This can help push you in the right direction to find properties that are eligible for a rental property mortgage.
Using equity to finance
For those lucky few with enough home equity, they can use the equity in a current property to finance other real estate investments. In this case, using a home equity line of credit turns your current property or home into collateral for the new loan. This is an important factor to keep in mind when getting a rental property mortgage. Additionally, any real estate investor can repeat this method almost infinitely to gain a bigger and more diversified real estate investment portfolio.
If you’re looking for releasing equity to fund your next real estate deal, read this blog post: Release Equity to Buy Another House – Basic Guide.
The baggage that comes along with the mortgage
You might think that when getting a mortgage, you’re only committing to the mortgage’s monthly or yearly payments. Think again, my friend! When you get a rental property mortgage, you are getting a whole new property to be under your wing! This includes costs of maintenance, homeowners’ association fees, insurance, and in many cases, utilities. Take serious note of that before getting a rental property mortgage.
Loan requirements
Most investment property financing methods will require the real estate investor to cover a hefty down payment and closing costs. Keep in mind that a down payment for an investment property is usually anywhere more than 20%. Additionally, many banks and lending firms require real estate investors to have at least 2 years of experience in property management to make sure you’re not in over your head with your rental property.
Simple steps to go about before getting a rental property mortgage
Getting a mortgage is not as hard as you think! You can follow the many online forums and free mortgage consultations that lending institutions offer online. Keep in mind that getting a mortgage requires you to make payments after getting it! So, here are a few steps you must take to get acquainted with rental property mortgage procedures:
Your own lending ceiling
With each real estate investor’s financial situation and credit report comes each individual’s financial obstacles and limitations. Keep in mind that Fanny Mae is currently allowing each real estate investor 10 loans for investment properties. Of course, this varies with each real estate investor depending on their credit score. When financing investment properties, make sure to figure out your financing limits beforehand. After all, you don’t want to start looking for properties at a certain price point then realize that you won’t be able to get funding for such an amount. It’s better to strategize your financial situation before starting your investment property search.
Find investor-friendly lenders
Building a real estate investment network includes having a reliable lender. Most importantly, find lenders that can help you as a real estate investor achieve your short-term and long-term goals. Additionally, find a mortgage broker that’s specialized or more knowledgeable with investment property mortgages. Of course, a mortgage broker’s use is a temporary addition to your investment network. Think about it this way: Is it better to work directly with the lending institution or have a middleman to conduct business on your behalf? Of course, the first serves your investment needs in the long haul better. To learn more about your rental property mortgage options, read this blog post: What Are Options for Investment Property Mortgage Loans?
More loans, fewer options
If you have a rental property mortgage on your hands and are looking to get another one, chances are you’re not going to get an easier loan assessment process. In fact, the lending institution will most likely be stricter with your second, third, and fourth loan. This process is intended to be this way to ensure a lower level of default. Keep in mind that owner-occupant properties have a much lesser default rate.
Conduct a thorough market analysis
With each investment property you intend to buy, your first instinct should be to run a well-balanced real estate market analysis. Nowadays, this can be done through an online investment property calculator. Let’s take Mashvisor’s investment property calculator as an example. You can find out the cap rate, cash on cash return, and even Airbnb occupancy rates with any real estate investment property you’re considering. Moreover, you can use the property finder feature to locate properties that fit your ideal real estate investments. Give Mashvisor’s investment property calculator a shot at conducting a real estate market analysis and enjoy the 14-day free trial by clicking here.
If you’re looking for more information on the benefits of a real estate market analysis, read this blog post: Why Is It Crucial for Every Real Estate Investor to Do a Real Estate Market Analysis?
Save cash
Saving cash or returns from different real estate investments can be your approval point for your next rental property mortgage. Of course, lenders dealing with investment property financing focus on your ability to keep up with the financial liabilities that arise with each real estate investment mortgage. Therefore, many lending institutions oblige the real estate investor to come up with a six-month advanced payment for the mortgage. This is designed to lower the default rate for rental properties. This works for both long-term rentals and short-term rentals.
Final words
When shopping for a rental property mortgage, keep in mind the previous factors as they can help you get the loan of your choice without having to suffer from larger interest rates. After all, real estate investors should focus on positive cash flow income properties in order to protect both them and the lender’s rights in the investment.
If you have any more insights on rental property mortgages, please share them with us in the comments section.