A Rental Property Loan is a commercial real estate loan designed to help investors purchase a property that will be rented out to tenants, whether they are residential or commercial tenants.
With a mortgage for your home, you can use either conventional financing or get a government-backed mortgage, such as an FHA loan.
Government-backed loans often have lower credit requirements than conventional loans.
Rental property financing usually involves a conventional loan.
Rental property loans and traditional mortgages have some similarities: both require you to make a down payment and pay off the mortgage in monthly installments that cover principal and interest.
But rental property financing comes at a price due to the fact that lenders are taking a larger risk by financing an investment property, they require a bigger down payment.
Lenders typically charge higher rental property loan rates than they charge on home mortgages.
The mortgage on a rental property may have an interest rate that’s 0.25 to 1 percentage point higher than the prevailing rate for a primary home.
A higher interest rate means your monthly payments will be larger, and you’ll pay more in interest over the life of the loan.
You can use a rental property calculator to analyze your return on investment, cash flow, and capitalization rate.
You’ll need to know the purchase price, loan terms, rental income, and property operating expenses for your rental property.
Lenders charge higher rates and fees for rental property mortgages because these loans are inherently riskier than a mortgage on a borrower’s home.
You may qualify for lower interest rates and fees by showing the lender you are creditworthy. Having a higher credit score shows that you’re a responsible borrower, and increasing your credit score can translate into better terms on a mortgage.
Putting more money into the deal upfront also results in lower rates and fees.
When you make a large down payment, the lender knows you’re less likely to default on the loan and may charge lower rates. Some lenders may allow you to buy down your rate as well.
You may also be able to save money by shopping around for a mortgage.
Getting multiple mortgage rate quotes can save borrowers thousands of dollars over the life of the loan.
Research from Freddie Mac shows borrowers who get just one rate quote may end up paying $1,500 more over the life of the loan compared to borrowers who get two quotes.
Borrowers who get five rate quotes may save $3,000 compared to borrowers who don’t shop around!
Cash flow is essential for generating wealth through real estate! With our long-term rental property loans, you can purchase or cash-out refinance on any rental property.
This includes single-assets or portfolio aggregations.
With a minimum of 20% down and a 600 FICO score, you can qualify for a 5/1, 7/1, and 10/1 interest-only ARM or a 30-year fixed interest-only payment with low rates.
Qualifying properties include single-family residences, 2-4 units, condos, PIUDs, and townhomes.