What is an investment property loan?
Investment property loans are used to purchase second homes or investment properties.
Loans for investments are riskier than those for a primary residence since default is more likely.
As a result, you must demonstrate that you are in great economic condition.
When it comes to acquiring investment properties, you have numerous options.
The only standard loan program that lets you buy an investment property without having to live in it.
Allow you to buy a 2-4 unit home with a mortgage backed by the FHA and collect the rent of the other homes, as long as you reside in one of the units.
A loan that allows you to use the equity of your home as collateral.
Is when you take out a mortgage for more than you owe and pocket the difference in cash, which can be used to purchase an investment property.
Hard money loans are common among house-flipping investors. You can expect hefty interest rates and a down payment of 25%.
If you plan on getting an investment loan here is how it works :
- Look for an investment property mortgage lender. You can ask your real estate agent for guidance on finding the best one.
- Fill out a loan application. If you are applying for a conventional loan, FHA loan, or VA loan the process is similar to any other loan.
- Provide extra asset documentation. Have two months of bank statements and any rental information on the property you are purchasing.
- Pay for an investment appraisal. A home appraisal helps you estimate the value of your home.
- Review your closing disclosure. After the loan conditions clear and the appraisal is completed the lender will issue a closing disclosure three days before closing. It is critical that you review all the numbers and make sure that they are correct.
- Gather your funds and close. You will wire or use a cashier’s check for your closing funds. Once the mortgage papers are signed, your loan funds are sent, the property will be recorded under your name.
- A sizable down payment, lenders require
- Mortgage reserves. (This means that
you should have enough cash or
assets to help cover 6 months of
- Proof of rental income. (ex. include rent
roll history, current leases, and tax
- Rental revenue may be utilized as a
means of qualification. A lender could
potentially let you add the actual or
anticipated rental income from the home
- History of property management.
(Property documents or tax returns are
- High credit score. The minimum credit
score for an investment property
mortgage is 640.
If you purchase a multi-unit home, the minimum credit score is 700.