Meeting the Mortgage Requirements for an Investment Property
In 2018 investment activity in the home buying market reached an all-time high, making up more than 11.3 percent of all sales according to CoreLogic, Inc. Many of these investors were individuals in the early stages of building their portfolio.
Buying your first investment property can be a daunting task, especially if you plan to finance the purchase. While not entirely unlike purchasing a primary residence, you may discover that there are fewer mortgage options available to you, and they may have additional requirements.
Similar to buying a home you plan to live, conventional mortgages are available for investment properties. However, you will likely need a down payment of at least 20 percent and may face a higher interest rate than you would receive when applying to purchase a primary residence. You’ll still have to meet the debt-to-income requirements, including any current mortgage payments, and will have options such as 15- or 30-year terms.
In addition, if your investment strategy involves rehabilitating a property, conventional loans require that a home meet certain minimum, livable standards before closing. A property in need of extensive or structural repairs may require going a different route.
If a conventional loan is not in the cards, it doesn’t have to mean giving up on your dream of becoming a real estate investor. Alternative mortgage products may offer the financing solution you need.
If you have a substantial amount of equity in your current home, a home equity loan may provide an effective way to purchase a second property. For fixer-upper investments, a renovation loan can finance both the cost of the property and the cost of the repairs. You’ll need to have a detailed renovation plan and have an appraiser agree that the improvements will adequately increase the home’s final value.
Regardless of how you finance the project, you’ll want to make sure to do your research and understand the implications of your decisions. While property investments have become a television phenomenon, the details will determine whether you see a profit or loss.
For a lending partner who is committed to educating clients, and can carefully explain the financing available to you as an investor, begin your path to real estate investing by speaking with an Open Mortgage originator today.