Bank Loan Requirements - Investment Property

By definition, the financing of investment-property involves a credit arrangement that allows the purchaser the opportunity to buy real-estate property for the purpose of generating income. Investment properties are intended to create income through rental earnings or capital-gains, either by buying the property with the intention of refurbishing and selling it at a profit, or using it as rental property. Properties that fall into this category include: apartments and condos, IRS and commercial properties, single family dwellings, ‘fixer uppers’, HUD and foreclosures, such as Madison foreclosures. Investment purchases require special financing.

Investment Property Loans

Investment properties involve funds that are borrowed with the intention of purchasing investment real estate and ultimately renting out the property to tenants. Lending institutions categorize this type of purchase as an investment-loan, and it is handled differently than underwriting for an owner-occupied loan.

Neighborhood banks sometimes provide better terms and seller financing has gained in popularity. Many investors are realizing the renewed potential in the residential real-estate market.

It is necessary to note that the credit market has become much tighter than in recent years, and it has become somewhat more difficult to procure a secure investment loan for income property. The upside is that with some foresight and ingenuity it is possible to acquire an investment real estate loan.

Tips for Financing Residential Investment Property

Many mortgage companies are reluctant to consider investment property loans. Plan on starting with a reasonably large down payment, as it’s usually necessary to put at least twenty percent down in order to obtain conventional financing. Twenty-five percent down may allow the buyer an even better interest rate.

It also helps if investors have a solid credit score as this has a positive influence on financing prospects and credit terms. In many cases, it is necessary to have a bank reserve that will cover, at the minimum, a half a year’s worth of expenditures (for both personal and investment spending).

The loan process for investment property financing includes different options depending on the buyer’s financial position and the lending prospects. Financing may be through a fixed-rate mortgage, adjustable rate mortgage, and interest-only mortgages, or it may involve balloon payments.

Choosing a Suitable Lender

Rates will vary according to the investment property loan, lenders, and the down-payment terms. Conventional lenders traditionally charge lower rates than many specialized investment-mortgage lenders. For this reason, it is necessary to select the lender that is best suited to your needs. An investment property mortgage calculator will allow you to compare the rates that are provided by different lenders. There are some financial institutions that cater specifically to certain types of properties. Prospective buyers also have used several creative possibilities for financing investment properties.