What Are Investment Property Loans?

Investment properties commonly refer to one to four-unit residential homes as opposed to commercial properties that include shopping centers and apartment complexes. With the help of property investment loans, you can purchase a home to sell it for profit or rent it out for extra income.

These loans are generally more difficult to obtain and have higher interest rates. Moreover, investment property loans serve as a tool for investors to increase their returns by leveraging the interest rate, down payment, and the length of payback terms.

However, investment properties are associated with a higher risk than private loans required for purchasing residential properties. This guide will discuss everything you need to know about investment property loans.

Investment Property Loan: Brief Overview

Investment property loans comprise strict lending standards and higher mortgage rates than standard mortgages, including greater down payment amounts. Qualifying for investment property financing for a single-family home requires at least a 15%-20% down payment.

An investment property loan is a lot different from taking out a mortgage on a vacation home. For vacation homes, the loan requirements are less. The down payment for a vacation home can be as little as 10%.

Moreover, the cash reserve requirement for a vacation home can be as low as two months. However, you’ll need up to six months for an investment property. Location is a major source of concern for a vacation home mortgage.

For instance, if the property is too close to your current residence, the lender will likely consider the purchase as an investment property where stricter lending requirements will apply.

Is it Difficult to Get a Loan for an Investment Property?

Qualifying for an investment property loan is challenging since lenders view investment properties with a greater risk. They want to make sure you earn enough to cover monthly mortgage payments in the worst situations, like if your tenant stops paying, for example.

In comparison with loans for a personal residence, where you can qualify for a 0% or 3% down program, lenders require a larger down payment on investment properties, usually between 20% and 35%.

You’ll need to get a traditional mortgage for the best rates and terms, but you can reach an upper limit of four conventional loans for investment properties. If you wish to continue, you’ll need to turn to private and hard money lenders.

Types of Investment Property Loans

Fortunately, property investors can find several different financing options. While some of them prefer more creative methods such as real estate crowdfunding or owner financing, here’s an overview of more traditional loan options.

Conventional Bank Loan

Acquiring a conventional loan for a property is one of investors’ most commonly used methods. If you own a home, you may already know about these loans. A conventional mortgage refers to any bank loan that is not backed by the government and complies with the guidelines set by Fannie Mae and Freddie Mac.

While the process of qualifying for a conventional loan is a lot similar to applying for a loan on your primary residence, you can expect the qualifying standards to be more stringent. As you may be carrying an investment property mortgage besides a loan on your primary residence, the lender has to be confident that you’re financially stable to hold both properties.

Hard Money Loans

Some companies offer loans, especially for real estate investment. These are hard money loans that can be secured more easily and quickly than a bank loan. If you don’t want to part with a significant amount of cash upfront to invest in real estate, it’s better to opt for a hard money loan.

This type of loan is more suitable for investors planning to flip the property instead of collecting ongoing rental income. Hard money loans can only be used for the short term. The terms on these loans are generally around three years. Moreover, it’s crucial to understand that these loans come with a higher mortgage rate.

Private Money Loan

An individual offering private loans to investors is not an industry professional. This individual is a private individual looking for ways to make a significant return on investment. You can find a private lender through your network of friends and family.

Investors who fail to qualify for a bank loan can opt for private loans. The qualifying standards for these loans are very flexible, and the interest rate is more favorable based on the relationship between the borrower and the lender.

Licensed Mortgage Brokers Available to Help You Get Excellent Loan Deals for Your Investment Property!

Are you struggling to manage the finances to complete your real estate deal? You’ve come to the right place! At Atlantic Home Capital, Corp, we provide a wide range of mortgage loans, including conventional loans, VA loans, FHA loans, jumbo loans, modular home financing, and much more.

Investing in real estate is one of the wisest decisions one can make in their life. You can add these investments to your assets and earn profit from them for years to come. However, you need to find the right loans to make an informed decision. With our services and expertise, our mortgage lenders aim to make finding loans much easier for our clients.

Our team of mortgage brokers provides services in seven US states, including Florida, Maryland, Alabama, New York, New Jersey, Connecticut, and Tennessee. Whether you’re planning to invest in a property for profit, purchase your first home, or refinance your existing one, we have got you covered.

Our team will first explain how the process works, and then we will help you determine the mortgage amount you qualify for.

We believe in making the loan application process simple and streamlined for our clients. You can get in touch with our representatives here for more information.