The traditional path to becoming a landlord is to save up money to purchase a rental home. Taking out an investment property loan is a shortcut, allowing you to achieve your goals sooner.
However, when it comes to financing investment properties, the options are somewhat limited. Many programs, including VA home loans and FHA mortgages, are only open to borrowers who want assistance purchasing a primary residence.
If you’re interested in an investment property loan, talking to an expert in rental home financing – like the team at Integrity First Lending – is the best course of action. In the meantime, here’s a look at the basics on loans for investment properties.
Conventional Home Loans
Conventional mortgages, or those not backed by the government, are an option for investment properties.
To purchase a rental home with conventional financing, you’ll need a solid credit score and a significant down payment – up to 20%, in some cases. Fixed-rate mortgages with 15- or 30-year terms are popular, but some adjustable-rate loans may also be good options for aspiring landlords.
Cash-Out Refinance Loans
If you have equity in your current home, a cash-out refinance loan may put you on the path to becoming a landlord.
With this financing solution, you’ll be refinancing the balance of your mortgage along with up to 80 percent of the loan-to-value (LTV) ratio of a rental home. You’ll end up with a new loan that covers both properties and has a single payment.
Qualifying for an Investment Property Loan
You may be ready to become a landlord, but are your finances in order? To qualify for a loan with a good interest rate, you should be in a strong financial position – you want lenders to know that you can afford to invest in a rental home.
For the best chance at an approval for an investment property loan with a favorable rate, experts say you should take steps to improve your credit score. Pay down your credit card balances, take care of any small bills in collections and, if possible, get added as an authorized user on an account with a good payment history.
Having a large down payment also improves the likelihood of being approved for financing and may even help you secure better loan terms. In addition, if you put down at least 20 percent, you can save thousands by avoiding mortgage insurance.
Consult with an Expert in Rental Home Financing
Investing in a rental home is a great way to boost your income, but finding a lender and securing financing may take a little ingenuity. If you’re ready to take the leap, having a highly-experienced loan officer at your side can make all the difference.
Integrity First Lending, based in northern Utah, can help you realize your goal of becoming a landlord. Our team of professionals has decades of combined experience in the mortgage and home loan industry, and we can tell you everything you need to know about qualifying for an investment loan.
For more information about Integrity First Lending, or to discuss your options for an investment property loan, contact our South Jordan or Tooele office today.