Investment Loan

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What is an investment property loan?

Investment property loans are used for the purchase of second homes and investment properties.

Lenders consider investment loans to be a bit riskier than lending to a primary residence. As a result, you must demonstrate that you are in great economic condition.

There are several types of programs that you can choose from when purchasing investment homes.

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There are several types of programs that you can choose from when purchasing investment homes.

Lenders ask for a few more requirements for investment loans because of the risks that they face. So be prepared to turn in and comply with a little more than a usual mortgage.

The only standard loan program that lets you buy an investment property without having to live in it.

You can 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.

Is 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. A down payment of 25% is needed and rates should be expected.

If you plan on getting an investment loan here is how it works

 

  1. Look for an investment property mortgage lender. You can ask your real estate agent for guidance on finding the best one. 
  2. 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.
  3. Provide extra asset documentation. Have two months of bank statements and any rental information on the property you are purchasing. 
  4. Pay for an investment appraisal. A home appraisal helps you estimate the value of your home.
  5. 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.   
  6. 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.
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Investment loan requirements include:

You will have to pay a large down payment. Lenders require 20%.

You must have mortgage reserves. This means that the money you have in the bank account should be enough to pay 6 months of mortgage payments.

Some lenders will ask for proof of rental incomes. So keeping copies of current leases and rent roll history will help you be prepared.

You can use your rental income to qualify. This means that lenders may allow you to add the actual or estimated rental income from the home you are buying to qualify.

You must show a history of property management. Property documents or tax returns are acceptable.

You’ll need a minimum credit score of 640 for an investment property mortgage. The credit score minimum will change if you are purchasing a multi-unit home.

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