Are you looking for new investment opportunities and considering getting into rental properties? If so, you need a specific loan type to buy a rental property. There are some key differences between conventional mortgages and rental loans. At Local Investments, we specialize in loans for rental properties, and we can help you secure the funding you need.
When you are looking to purchase an investment property to rent out or eventually flip, you can’t pursue the same type of loan you would for a primary residence. If you’re wanting to rent out a mortgaged home, there are guidelines you must follow if you have a traditional loan. Instead, a rental loan provides reliable funding for the property that you’re looking to purchase but not actually live in. And, with rules in the lending industry-changing regularly, you’ll want to work with a funding company that specializes in these types of loans, like the team at Local Investments.
There are notable differences between a traditional mortgage and a loan for rental property, including:
Obtaining a rental loan is more challenging than securing a loan for your primary residence. Lenders know there is a higher chance of late payments and defaults on a rental home loan. If you own a primary residence and a rental home, you’re more likely to default on the rental home loan if you run into financial difficulties.
Not all property types may qualify for rental loans. You may be limited to homes, condos, and other single-family units. If you are purchasing a multifamily unit and you plan to live in one of the units, you could be eligible for more conventional loans like a multi-family mortgage.
Qualifying for a rental loan could be more challenging, and your interest rate could be higher if you do qualify. The lender’s perceived risk is directly tied to things like the interest rate.
If you qualify for a conventional mortgage, you need to make a down payment that’s at least 20% of the sale price to avoid private mortgage insurance. PMI protects the lender if you borrow money and default on the loan. Other types of loans don’t require PMI, though you may need to make a minimum required down payment or agree to a higher interest rate to qualify.
Local Investments offers several different types of rental property loans depending on your needs:
Hard money loans, also called bridge loans, can finance a new property acquisition, renovations, or improvements, or even be a short-term solution to stabilize rent. They are available for both individuals and corporations. Hard money loans are asset-based, which means the lender is looking for real estate as backing, not your personal credit history. Commercial bridge loans are a specific type of hard money loan primarily used to pay off older commercial property loans or rehabilitate a property. Residential bridge loans are short-term loans that can provide cash to buy a property before securing more permanent funding or removing an obligation. Both property owners and commercial investors can qualify for a bridge loan.
Multifamily loans are for investors looking to buy a building with more than four housing units. Multifamily loans can be conventional, short term, government-backed, or portfolio. The type of multifamily loan will vary based on whether you will be living in one of the units or not.
As the name suggests, fix and flip loans are ideal for house flippers who need a loan quickly to grab a great deal, start renovations, and quickly get it back on the market.