Are you looking to buy a home for the purpose of renting it out for additional income? If so, know that the process of getting a loan is a bit different than what it was for your primary residence. Here is what you need to know about investment property loans.
Conventional Loans
Any loan that is considered a conventional loan means that it can be bought by Fannie Mae and Freddie Mac. While these loans are primarily used for someone's main home, it can also be used for investment property. However, there are a lot of strings attached to getting a conventional loan that makes it difficult to get. For example, you will need to have a debt-to-income ratio that meets conventional loan standards.
The biggest catch to getting a conventional loan for an investment property is that you must buy the home under your personal name. You cannot buy the property as an LLC or other business entity. This can cause people to go down a path that they don't want to do, and they will look for another type of mortgage to buy the rental home.
Unconventional Loans
You also have the option to get an unconventional loan through a local lender, such as a credit union. They often have the same underwriting guidelines as a conventional loan, but they give you the option for a business to purchase the home rather than you as an individual. This can provide you with some peace of mind since it takes some of the risk off you and your individual assets.
It is possible to get an unconventional FHA loan to purchase rental property. The catch is that you must live in the property for the property to qualify. This is ideal if you are purchasing a multi-unit building and plan on living in one of the units
Hard Money Loans
Hard money lending refers to using a private investor to finance your purchase. While it is not always easy to find a hard money lender, it is a viable option for many people looking to purchase a rental property. That is because the lender is making a judgment call based on you and the property that you are purchasing.
If you have a good credit score and are buying a property that is in good condition, you'll have great luck finding a hard money lender that is willing to finance your purchase. If you have poor credit and the property needs a lot of work, it will be difficult because there is a lot more risk to the lender. The loan is backed by the property you are purchasing, so the lender will want to be able to take over the property if necessary. Reach out to a company like Constructive Loans LLC that can help you with investment property loans.
Share20 January 2022
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