Getting an investment property loan isn’t as easy as getting a home mortgage. Lenders have stricter requirements for real estate investors, so anyone looking to become a landlord needs to be in a strong financial position.
Why the tighter lending standards? Simply put, investment loans are riskier for lenders, as rental properties have higher default rates than primary home mortgages.
If you’re interested in investment property loans, an expert in rental home financing can answer your questions and help you explore your options. But for a general idea of what it takes to qualify, read on.
To secure an investment property loan, you’ll need a good credit score. The minimum score isn’t the same for every lender, but for a favorable interest rate and terms, yours needs to be above 740.
Generally speaking, lenders require a down payment of at least 20 percent for rental home. If you want financing for a multi-family investment property, however, you will likely need to put 25 percent down.
In order to qualify for a property investment loan, your debt-to-income ratio should be at or below 36 percent. A slightly higher number may be acceptable for some lenders, but if yours rises to 45 percent, you’ll likely be denied financing.
Lenders compare the investment loan amount to the fair market value of the property. This ratio reveals their risk of loss in the event of foreclosure, based upon the amount of equity in the rental home. In this case, less than 80 percent is the ideal.
Lenders often require real estate investors to have extra financial assets. Some want borrowers to have enough cash reserves for several months’ worth of home loan payments, including taxes and insurance, but the exact amount required varies.
Investing in rental properties can be a smart way to improve your financial future, but finding a lender and qualifying for financing can be challenging.
If you’re ready to become a landlord in northern Utah, Integrity First Lending can help you achieve your goal. Our team of professionals has decades of combined experience in the mortgage and loan industry, and we can streamline the process of securing a property investment loan that meets your needs.
At Integrity First Lending, serving Salt Lake City and the surrounding northern Utah communities, we want you to see success as a real estate investor. Contact our South Jordan or Tooele office to find out everything you need to know about qualifying for an investment property loan today.