Investment Property Lending

Investors and rehabbers know this: Interest rates on investment property mortgages will always be higher than on owner-occupied properties.

So, what does that mean? How much higher?

Of course, the answer to this question depends on a number of factors:
* Investor’s credit score
* Debt to income ratio
* Cash reserves
* Loan to value ratio on the investment property
* Amount of down payment.

Investors should plan for a 25% down payment to get a good rate on a 30-year fixed loan on up to 4 units. Portfolio loans with less down payment are available but at a much higher interest rate. Often the gain with the lower down payment is outweighed by the higher rate.

Generally, you can expect the interest rate on your investment property to be at least 0.50-1.0% higher than the rate on your primary mortgage. And you’ll be required to have reserves (several months of mortgage payments) in the bank to cover those months when your property is unoccupied.

Why higher rates? Because for lenders, a rental or investment property is considered a riskier investment. Mortgage lenders know that when things get financially tough, borrowers tend to stop paying on rental property loans before risking their primary residences.

To protect themselves against the extra risk that comes with investment property mortgages, lenders charge a higher interest rate and have stricter qualification rules for borrowers.

RENOVATION LOANS
Did you know there are home loans with built-in renovation financing, so you can purchase the home and have additional funding for repairs and renovation required to improve your investment property? Basically, you can finance the renovation in the original loan and you can have up to seven months to complete the project.

Examples of renovation financing projects:

* Remodel kitchens/bathrooms
* Repair roofing, gutters and downspouts
* Build a garage or add a room
* Replace flooring and tile
* Update heating, cooling and/or plumbing

This is a great alternative for value add properties that gets you a rate for less than hard money lenders.