If you’ve ever thought about buying investment property, you’ve no doubt been trying to find a way to get the financing. A traditional loan may not be suitable, so you should explore home loans. It may have seemed like too big a business, too much money up front, or too risky for you. You need to fully understand the types of home loans available, the qualifications required and the alternative options available to you. Then you can make an informed decision for your next investment property.

What is an investment property loan?

An investment property loan is a loan taken out by an investor or developer for the purpose of purchasing an investment property. This could be buying a multi-family property to live in and rent out, a repairer to resell and sell, or a single-family property to rent out for long-term passive income. Regardless of the type of investment property you choose to diversify your portfolio, all types of loans should be considered.

How do investment mortgages differ from traditional mortgages?

The main difference between investment home loans and traditional home loans is the assets required to be approved. An investment property almost always requires at least 20% or more down. With a traditional home loan, you can buy with as little as 3% to 5% down, depending on the type of loan. However, you have the option of making that down payment and getting approved for a home loan.

Types of home loans to consider

Although there are many types of home loans, here are some of the most commonly used:

  • Classic bank loan: It is possible to secure the financing of an apartment building through a traditional bank loan. Just keep in mind that a bank may require up to 30% down payment and will not factor future rental income into debt-to-income ratio (DTI) calculations.
  • Hard money loan: This is a great option if your intention is to flip a property quickly. Hard money loans are short-term loans (usually one to three years) with higher interest rates. However, financing can be obtained quickly and after repair value (ARV) may be considered for loan approval.
  • Private loan: The terms and interest rates of private money loans can vary widely as this type of loan is granted from individual to individual. It could be a family member or friend or a real estate investor from a club or network who wants to sign a contract with you and lend you money.
  • Home Equity Loans: If you have equity in your primary residence, you have some options. You can consider a home equity line of credit (HELOC), a traditional home equity loan, or even a cash refinance.

Who Needs Investment Mortgages?

Any investor interested in purchasing an investment property can apply for a loan. Even if you have the cash to buy a property, you may not want to tie it all into one investment. Check your options and what would work best for the property you are looking for and the overall short and long term impacts of the investment.

The best home loan providers

To help you decide on the best path to take for your investment, take a look at three popular home loan providers to see the mortgage options each has to offer.

Luxury mortgage

  • Avg. Days before loan closing

    30 – 40

Luxury Mortgage offers a variety of solutions for any investment goal, including traditional and non-traditional options for independent investors and borrowers. Some of its best options include:

Investor cash home loans: These loans will calculate your expected cash flow from a rental property into your total loan qualification.

Condominium loans: Loans to buy and refinance condos are available through Luxury Mortgage, though they’re hard to find at other major mortgage companies.

Qualifying loans: This option allows you to use verification of investment accounts, retirement accounts, and bank accounts to qualify for a loan, regardless of your income and employment status.

Financing is available through Luxury Mortgage for one to four unit investment properties, while offering aggressive pricing and rates and top-notch customer service. Luxury Mortgage also works with borrowers with lower credit scores (as low as 580) and offers a variety of mortgage products. The only downside is that this provider is only available in 29 states.

Rocket Mortgage

  • Avg. Days before loan closing

    30

This well-known mortgage company is popular with first-time home buyers and homeowners looking to refinance. It prides itself on having a quick and easy home loan application and easy-to-navigate online tools that will help you through the loan process.

Its sister company Quicken Loans offers multiple investment loan options while keeping the process quick, easy, and completely online with its industry-leading tools. She specializes in mortgage options such as:

Home Equity Loans: You may be eligible to borrow 80% to 89% of your home’s value through Quicken Loans. This is a second mortgage, however, which means it will likely carry a higher interest rate than your main mortgage, but the interest may be tax deductible. This type of loan allows you to borrow a certain amount of money for a fixed term, like a first mortgage. Your rate can be fixed or revisable. The downfall is that you will have two mortgages.

Refinancing by collection: Depending on your equity and credit score, this option typically allows you to borrow up to 80% of your equity – or up to 100% with a Veterans Affairs (VA) loan. This is a new primary mortgage, so your interest rate is lower with this type of loan than a home equity loan because it is not a second mortgage. You can continue to focus on one mortgage while still having cash available to invest.

New US funding

  • Avg. Days before loan closing

    31-40

    securely through the New American Funding Purchase website

This is another great lender for investment property loans. It covers all the types of loans you might be interested in exploring. Here are some additional options:

Conventional mortgages: It can be a fixed rate mortgage or an adjustable rate mortgage. New American Funding has specific guidelines for conventional loans when dealing with investment property. A large down payment and a higher credit score (at least 620) are your best bet with conventional mortgages.

Non-qualified mortgages (NON-QM): With flexible requirements, this type of loan is ideal for self-employed borrowers. Qualifications can come from proof of assets, personal or business tax returns, or bank statements.

Although New American Funding has many great educational tools, loan types, and helpful resources for managing your loan online, it does not operate in New York or Hawaii.

Conclusion

When you’re ready to take the plunge into buying investment property, be sure to check with Benzinga for a refresher on the types of loans available and the best lenders to help you through the process. Knowledge is power, especially when it comes to your successful investments.

Frequently Asked Questions

Q

What type of mortgage is best for an investment property?

A

It depends on your financial situation and the type of investment property you want to buy. Having a higher credit score, a larger down payment, or equity in your home are all great places to start.

Q

Is it difficult to finance an apartment building?

A

Although it may be more difficult for some, there are usually creative options and non-traditional loans that can help finance investment properties, making it easier for most investors to obtain financing. If you are interested in buying an investment property, give it a try. Contact these lenders and ask questions. Chances are they can help you achieve your goals or at least point you in the right direction to set you up for a successful future for financing your investments.