For those interested in diversifying their financial portfolio, investing in real estate can be a great option. Whether you’re looking at buying a rental property or a commercial property, one of the first things you’ll have to consider is paying for the property. A home mortgage is one tried and true way to secure the funding for an investment property. However, when the mortgage is for an investment property you will not be living in, the requirements can be different than for a traditional home mortgage. To help you navigate the differences, here’s a quick look at how you can get a mortgage for your investment property.
Use a High Down Payment
One of the best ways to secure an investment property loan is to have a large down payment. If you begin the process with 20-25% down, you’ll have a much easier time securing a loan as well as a better interest rate. If you don’t have that amount of cash on hand, consider bringing in a partner.
Offer a Low-Risk Investment
Along with a sizable down payment, another great way to secure an investment property mortgage is to qualify as a low-risk borrower. This means you have a strong credit score, an acceptable debt-to-income ratio, and you have a cash reserve that can adequately cover at least two months of your mortgage (including taxes, insurance, and interest) in the case of an emergency (such as losing your prospective tenants).
Show Provable Assets
Finally, you’ll want to demonstrate a stable income and a strong list of assets. You can also use the income from other rental or income properties that have been proven to be stable and reliable. Assets can be your savings account, retirement funds, CDs, and other previous investments. Again, the purpose is to demonstrate to the lenders you have the financial capabilities of paying off your investment mortgage on time, even in the face of unusual and unpredictable circumstances.
With each successful investment property mortgage, you will increase your financial portfolio and knowledge, making it easier to secure future investment mortgage loans.
By Coldwell Banker