Four Hot Tips for Financing an Investment Property

Four Hot Tips for Financing an Investment Property
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    The prices of houses have been escalating at a steady pace. This makes people wonder if it is a good time to invest in the real estate market or not.


Studies have shown that low-interest rate is attracting buyers. The limited source of inventory is the reason behind falling prices in certain areas. While the interest is low, the days of easy and quick finance have come to an end.

In fact, the credit market can make it difficult for you to get loans. You can apply a little creativity and preparation to get the loans such as investment property loans. If you are planning for investment property loans, you can follow the tips given below.

1: Have a Considerable Down Payment

Home loans such as mortgage insurance will not cover the insurance properties. You will have to make 20% down payment for traditional financing. However, if you are able to make a down payment of 25% then you might qualify for a better interest rate.

In case, you do not have the amount to make a down payment, you can try to get a second mortgage on your property. However, this might be pretty difficult.

2: Stay Away from Big Banks

If you do not have sufficient money to make the down payment or if it is not as big as it should be then you should avoid going to big banks and opt for a neighbourhood banks for investment property loans. This is because they will have little more flexibility than the large banks. As a matter of fact, they might also have an idea about the local market. You can also go to mortgage brokers since they have an access to a wide range of products. However, make sure that you do some research before choosing one.

You can take the recommendation of friends and family members to find out lenders. You should not hesitate to inquire about the credentials. Ask if they have a college degree or belong to an organization.

3: Ask for Owner Financing

When you request for owner financing, it makes the potential buyers suspicious since anyone is capable of qualifying for a bank loan. However, these days, it has become more acceptable due to the stringent credit system.

Nonetheless, you need to have a game plan if you have planned for this. You will have to mention that you will opt for owner financing with a specific amount of money and terms.

4: Understand the Numbers

Once you have an idea about the credit and what you can qualify for, start making a list of the types of investment properties that you are interested in. You should keep in mind that second homes will provide better financing. However, it will depend on where the property is located and what your plans are.

You can talk to your tax advisor whether it will be better to buy an investment property or a second home. Make sure that you are upfront about the usage of the property. Avoid falsifying the information as it might cause some legal issues.

Purchasing an investment property with the help of investment property loans has several benefits. Some of them have been mentioned below.

  • Since the property market is more stable than the other, you will get fixed return on investment.
  • The income is certain as you get constant rent payments from the payment. If the income from rent is higher than a mortgage payment, you will not have to pay some extra money for paying off the loan. You can also use the extra money to cover the property costs.
  • If it is in a good location then it will generate more profit.

With the help of investment property, you can claim the tax associated with the expenses of investment property such as council rate, maintenance, and fees charged, at the end of the financial year.



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