WHAT YOU SHOULD KNOW ABOUT RENTAL PROPERTY LOANS
If you think getting a loan for an investment property will be as easy as it was when you got your mortgage—you’re wrong.
Buying an investment property loans in Arizona for a rental home is a fantastic way to add income—however, the problem lies in approval for that loan. Lenders are much more strict in their underwriting when it comes to investment properties. This is because borrowers will default much quicker on an investment property loans in Arizona than they will on their home.
If you are new to real estate investing there are a few things you need to know about the difference in an investment loan from a primary home mortgage. If you are planning on obtaining conventional financing then plan on putting down a minimum of 20% of the purchase price. The more you can put on a down payment the lower your interest rates and fees may be. You can also expect to add between 1-3 more percentage points than an owner-occupied loan. Your credit score is of utmost importance to the lender, as well. Banks like to see at least a 750 FICO score—anything lower than that, expect higher interest rates. Your loan option pool will become smaller depending on how many mortgages you have on your credit report. In fact, once you have four mortgages on your credit, conventional lenders won’t fund you anymore.
RENTAL PROPERTY LOAN OPTIONS
Conventional Bank Loans— This is a loan that conforms to guidelines established by Fannie Mae and Freddie Mac—these are the strictest of guidelines in the lending business. While equity builds faster because a higher down payment is required up front—the higher down payment makes it quite difficult for newbie investors.
Small Banks/Credit Unions— You will work with a small lender that will keep your loan in-house instead of selling it to an investor. These institutions will be more willing to finance to drive investment in your area—but, many won’t lend outside of your geographic area.
Owner-Occupant— Purchasing as an owner-occupant means you will buy a property with more than one unit and you will reside in one of the units. In this scenario you may be able to get better loan terms and interest rates because, in essence, it is your home— however, a conventional loan will require a minimum of six months of reserves and most lenders want twelve months.
Hard Money Lenders— Hard money lenders are an asset-based loan where a borrower receives funds secured by property. Hard money lenders are private investors or companies. A borrower can negotiate a deal because there are no set lending requirements—qualification process is simpler and less time consuming than other lenders and there may be lower closing costs associated with the loan. Most of these loans are short-term, but can be refinanced.
When it comes to financing for an investment property loans in Arizona a conventional bank is usually not the answer.
Rental real estate can put you on the path to achieving wealth. Successful investors know that the type of lender you choose is as important as the property you choose—choose wisely!
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