Rental property can be a great stream of income for you, but it generally starts with finding the right financing. Depending on how you plan to use the property can determine the best course of financing. It is important to know that tighter lending restrictions have been put into place, so being well informed before deciding on your financing can be key to success.
If you have good credit, along with a proven work history, you can buy a rental property without having to live in it first. Don’t under estimate your good credit score value, because this can be a bargaining tool when dealing with a lender.
There are varying requirements depending on the lender as to how much you have to put down, and the terms might not be as good if you do not plan to occupy it first. Mortgage insurance will not cover investment properties, so count on 20% down. If you can come up with 25%, you will quality for better rates. Don’t forget closing costs will be added in. Lenders are also looking for reserves on investment properties, so that you have a safety net in case you do not collect. Having extra money in the bank will help.
If you are strapped for cash down, some investors might look for a second mortgage on the property, but that is difficult to find. Another source is the local, smaller banks. They have more flexibility to negotiate. Mortgage brokers are another good source of funding because they have access to a broader range of lenders.
“If you're looking at a good property with a high chance of profit, consider securing a down payment or renovation money through home equity lines of credit, from credit cards or even from some life insurance policies,” says Ben Spofford, an Ohio home remodeler and former real estate investor. This is riskier, but sometimes thinking out of the box allows you to finding funding in non-conventional places. Sites like Prosper.com and LendingClub.com are where investors can be found that might want to partner with you if they feel your property can be highly profitable. You can be sure that you will need to provide full credit history, references, prior investment portfolio information, etc. They will want to know their money is safe with you.
Another option is to purchase a home you might be interested in renting later but to live in it first. This qualifies for you for more favorable lending terms. Even if you just live in it for a year, you can likely reduce the interest rates. Take this time to get to know the area, determine who might be the best rental target market, even make needed repairs that will help you rent it for more before you turn it into a rental property.
Portfolio lenders are another option. They keep loans in their own loan portfolio rather than sell them into the secondary market. Since the original lender keeps the loan, it doesn’t have to meet the terms of Fannie Mae or Freddie Mac. This can be an advantage to consider. Let a professional realtor or banker assist you with this.
U.S. Department of Housing and Urban Development foreclosures are another possibility. With properties like these, you may not need a mortgage, but you will most likely have to invest cash into repairs to get a property back to livable and even rental condition.
The National Association of Realtors reported that 85% of major metro areas saw gains in existing, single-family home prices in the first quarter of 2015, while 14% saw a price decline. Therefore getting into the housing market is still a viable because low interest rates are still attracting buyers. Will the next one be you?
For more information:
http://money.usnews.com/money/blogs/on-retirement/2015/11/05/4-tips-for-using-rental-property-for-retirement-income
http://www.bankrate.com/finance/real-estate/5-tips-for-financing-investment-property-2.aspx