Rental properties can serve as reliable long-term sources of income. If you are considering an investment property, you will need to find a good mortgage financing option.
Mortgage loans for rental properties often have different, more complex standards than loans intended for home buyers. Since it is typically riskier for lenders to finance rental properties than an owner-occupied property, it can be more challenging to find a suitable mortgage loan option.
Here are four mortgage financing options to consider when investing in rental property.
1. VA Loans
For those who qualify, VA lending options are one of the best solutions to financing a rental property mortgage.
Active military service members, veterans, members of other federal organizations, and in some cases, spouses of such individuals can qualify for VA loans.
If you are eligible for a VA loan, you can enjoy benefits such as no PMI, low-interest rates, and an optional downpayment. Since other loan options require down payments of varying minimum percentages, VA loans offer unbeatable perks for those who qualify.
2. Conventional Loans
Conventional loans are a popular choice for many rental property buyers.
If you are financially stable, these flexible, non-governmental loans offer the security of fixed interest rates that do not fluctuate with the economy throughout the ensuing years.
To qualify for a conventional loan, you must have proof of a long-term stable income, your current credit score, and a low debt-to-income ratio (DTI).
Private mortgage insurance (PMI) may be required if your down payment is low. If you put down 20% or more as an initial payment on your property, you will be able to bypass PMI entirely.
3. Jumbo Loans
If the rental property you wish to invest in exceeds $484,350, a jumbo loan can serve as the ideal solution.
As with the average conventional loan, lenders typically require applicants to meet standards that include proof of income and an acceptable credit score to qualify for a jumbo loan.
Since jumbo loans are more of a risk for lenders to provide, most lenders require applicants to have a credit score of at least 700 and a lower DTI than the average conventional mortgage. If you meet the standards that your lender requires for a jumbo loan, you can get a mortgage for a more expensive rental property.
4. FHA Loans
While conventional loans are ideal for those with years of stable income and high credit scores, there are options for property buyers with lower credit scores and less predictable income. Federal Housing Agency (FHA) loans.
If you wish to invest in a property of four units or less, the required minimum down payment is only 3.5%.
With less stringent requirements, FHA loans are ideal for buyers looking to purchase their first rental properties. To qualify for FHA loans, buyers must use their rental properties as their primary residences for a year. FHA loans are most suitable if you wish to purchase an apartment or house with multiple units.
5. Home Equity Loans
If you already own one or more properties, a home equity loan can provide another option for financing a rental property mortgage.
Home equity loans or a home equity line of credit (HELOC) are options that allow buyers to utilize their home value to get a mortgage loan for a rental property.
While home equity loans are less predictable than fixed-rate loans, lenders often provide applicants with low-interest rates and a high maximum borrowing limit.
Most lenders require customers to have credit scores of at least 620, a stable income, and a low DTI. It is easiest to qualify for a HELOC or home equity loan if you already own or have previously owned a successful rental property.
When you are looking at mortgage financing options for a rental property, it can be a challenge to determine which type of loan will be most suitable in the long run.
It is important to research several lenders to discover which one can ideally meet your needs.
With this year’s low-interest rates, now is the ideal time to get a mortgage for a rental property. Successful rental properties can become lucrative income sources in the following years.
When you wish to get a rental property mortgage, it is essential to choose a loan that provides the best rate for your situation.
To find a lender that best understands the specific needs of investors, visit us at Supreme Lending today to explore what loan programs are available and which lenders can be a good fit for you.