Are you looking to purchase a rental property, but need financing in order to do it? If so, you'll need to secure a loan. However, this type of loan is a bit different from getting a loan for your primary residence. Here is what you need to know about the following options for rental property financing.
You always have the option to get a conventional mortgage for your rental property. While this can give you a great rate and a low monthly payment, it all depends on your personal financial history. You need to have a good credit score, a big down payment, and a qualifying debt-to-income ratio. This limits you to how many rental properties you can finance with a conventional mortgage because of that debt-to-income ratio.
However, this will be the safest loan that you can get if you are getting started with investment property. That low monthly payment means that you have a low overhead, and can save up additional funds to cover months without a tenant, repairs, and general upkeep of the property.
Hard Money Loan
A hard money loan is essentially a private loan from an individual. You are going to need to find somebody that is willing to invest in you, help you acquire the property, and fund renovations. You typically have a high interest rate with this type of loan, and the lender will be looking for some sort of exit plan for how soon the loan gets paid back. For example, you may have a shorter term where you need to pay off the loan, and if the loan needs an extension then it will have a higher interest rate. This is not an option for everyone, but possible if you have the right investor.
If you are purchasing a multi-family building, you have the opportunity to use an FHA backed multi-family loan. What marks this loan unique is that it has very low requirements in terms of your credit score and down payment, but you must be a tenant in the building that you are renting. This can give you a very favorable interest rate for your own housing, and making a profit off other units that you are using as a rental.
Not sure about the right kind of financing you need for your rental property? Reach out to a specialist in your area that handles these types of rental property loans.Share