Adventures of a Renegade Real Estate Investor

The Nitty Gritty on Investment Property Loans

The Nitty Gritty on Investment Property Loans

By on Nov 26, 2013 in Latest News |

The Nitty Gritty on Investment Property Loans

Most people find out pretty quick that loans and mortgages for investment purposes are different than those for buyers who will be occupying the purchased residence.The Nitty Gritty on Investment Property Loans

However, if you should want to invest in a property but are not a cash buyer, don’t fret. There are investment property loans available. If you’re looking for a cash flow opportunity and have considered property investment but don’t currently have the cash flow to purchase a home, a property loan could be your answer. Loans like these can be used for real estate development, new construction or land development. However, all terms and rates will differ slightly so you’ll need to really weigh out your options very carefully. You’ll need to decipher the rate and terms in the loan you’re applying for whether residential or commercial. Both loans require different underwriting departments with different standards for qualifying.

Residential Property Loan are designed to provide designed to provide housing for people on units of four or less per property. This type of loan is closer to a typical home mortgage. Lenders and mortgage brokers will take into account your land lord experience and then examine your debt to income ratio, credit history and score(to be expected), and the property’s loan to value ratio, of course. These kind of loans can be 15 to 30 years and are usually .5% to 1% higher than owner occupied loans.

Commercial Properties are designed for five or more units per property, apartment complexes, or commercial buildings or other kinds of commercial investments. As expected, your debt to income ratio will be looked at. However the ability for the property to provide cash flow will be examined as well as your experience as an investor to manage the business or complex. Additionally, lenders will also look at your debt service coverage ratio which only deals with commercial lending. Lenders want to be certain that your monthly cash inflow will meet the terms of the loan.

There’s also something called a hard money loan which is where a professional private lender gives you a property loan. These kinds of loans tend to be for distressed properties or people looking to do a “flip”. Be aware that these loans tend to have higher rates and much stricter terms.

To start down the road to discovering if there’s an investment property loan for you, contact us today.