Everything You Need to Know About Investment Property Loans

Are you thinking about buying an investment property? Owning an investment property is an excellent way to build wealth and secure your financial future. Read on for an introduction to investment property loans.

Benefits of Buying An Investment Property

Investment property owners enjoy many ownership benefits. Here are just few of the primary perks of being a landlord.

Relatively easy to finance
Tax benefits (ex. Maintenance, interest, insurance)

Financing Your Investment Property Purchase

Unless you can afford to pay cash for a property, you’ll need to obtain financing. The vast majority of financing opportunities available to buyers come from lending institutions such as banks, credit unions, and mortgage brokerages. Let’s look at some of the elements that a lender uses when determining your loan eligibility.

Credit Score

Lenders want evidence that you are a decent credit risk and will repay an investment property loan. Just as with a home loan, a lender relies on your credit score as one way of figuring out your creditworthiness.

A credit score reflects your present credit situation based on an analysis of your credit report by a credit reporting agency such as Experian, Equifax, and TransUnion. The credit reporting agency looks at factors such as your payment history, credit load, types of credit, and the length of time that you’ve used credit in coming up with a credit score.

Credit scores usually range from 300-850 and the higher the score, the better. Lenders crave excellent credit risks, and so they entice borrowers with credit scores above 750 with more favorable interest rates and loan terms.

Borrowers with average credit scores can still obtain financing, but they might have to put more money up front to qualify for the loan.

Experts recommend that you obtain a copy of your credit report from a credit reporting agency before speaking with a lender. Unfortunately, significant errors in the reports are commonplace, and the errors often lead to erroneously low credit scores. Scrutinize your credit report and make sure that you make the credit reporting agency aware of any mistakes in it.

Other Factors in Loan Eligibility

Lenders realize that your credit score is not the only thing that matters when deciding whether to loan you money.  Signal to your lender that you are a responsible borrower in a stable financial situation. Enhance your loan opportunities by presenting information on the following possibilities:

Secure Employment
Additional Sources of Income
Other property

Reserve Funds

Many lenders insist that you have enough money on hand to pay all of your personal and investment expenses for at least six months to qualify for a loan.

The Lender is Key to a Great Loan

Not every investment property loan is the same and every lender doesn’t offer every possible funding opportunity. It’s vital that you choose to work with a reputable lender who has access to a wide variety of options that meet many different financial situations.

Homes for Heroes lending specialists work with a variety of home loans and assists heroes all over the country with their real estate ventures. Our affiliate lending specialists help heroes obtain financing to purchase investment properties in their communities while saving money at the same time. SIGN UP to speak with a local Homes for Heroes affiliate loan specialist in your area. Let them answer your questions, assist you with your financing needs and save you money along the way. 

Down Payment

How much money can you put forward as a down payment on a property? Most lenders require that you commit 20-40% of the purchase price as a down payment. Since you’ll get better interest rates and loan terms with a more substantial down payment, it might make sense to take money from alternative sources such as a home equity line of credit to fund the down payment.

Property Appraisal

Expect the lender to order an appraisal on your investment property before authorizing a loan. The lender wants to make sure that, if you default on the loan, the value of the property exceeds the loan amount. You may need to provide a more significant down payment if the property does not appraise for a high enough amount.

The most common type of appraisal for an investment property is called an income valuation. With this type of assessment, the appraiser includes potential rental income in the factors used to determine the value of the property.

Here are some of the elements used by an appraiser in assessing the value of a property.

Potential Rental Income
The condition of the property
Recent comparable sales

Make sure that you request a locally licensed appraiser to examine your property because a locally based appraiser is more likely to understand the real estate market in the area and value the property appropriately.

An Expert Real Estate Professional Can Help You Find the Right Investment Property

An investment property is only viable if it generates enough income to cover its expenses while you build equity. Why not use the expert knowledge that an experienced real estate specialist has of investing in property in your community for your property search? Look for a real estate specialist who has in-depth knowledge of buying real estate as an investment.

Homes for Heroes affiliate real estate specialists throughout the United States specialize in locating exceptional investment properties. You’ll even save $700 per every $100,000 of the purchase price if you use an affiliate real estate agent to buy your property. In recognition of your life of service, you’ll receive a Hero Rewards check a few weeks after closing on the property.

Lastly, buying an investment property is an outstanding opportunity to ensure a flourishing financial future. Since the purchase of income-producing real estate comes with unique challenges, such as higher down payment requirements, it’s vital that you choose to work with lending and real estate professionals who are experts at helping buyers succeed in becoming landlords. Homes for Heroes stands ready to assist you with all of your real estate transactions. SIGN UP  and let us connect you to a Homes for Heroes specialist today.

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