Once you spend some years in your primary residence you may want to purchase a second property for rental income or to flipping it for profit. Purchasing real estate for the purpose of increasing your income requires an investment property loan.
What is investment property?
Investment property is real estate that is purchased with the intention of earning the money invested in the property back. This can be achieved in two ways: through income generated by rental property or by flipping homes for profit.
Where do I find investment property loans?
Investment property loans are a specialized type of mortgage loan. Therefore, not all mortgage lenders offer investment property loans. It is especially difficult to find this service among banks like Bank of America.It is much easier to find investment property loan programs among private mortgage lenders.
How much down payment do I need for an investment property?
Mortgage lenders that offer investment property loans typically require a 20% down payment, but some may require a down payment of 30%. Investment property loans do not qualify for private mortgage insurance, PMI. As a reminder, PMI is insurance applied to loans where the borrower offers a down payment lower than 20%. This insurance comes into effect should the borrower ever fail to meet their monthly payments. By requiring a 20% down payment on investment property loans, mortgage lenders are ensuring that the borrower can afford the investment property.
What are the requirements for an investment loan?
Overall requirements for an investment property loan will vary depending on the chosen mortgage lender. Common requirements for investment property loans include good credit scores, savings, and prior property management experience.
The range of a good credit score for an investment property loan is 670 and above. However, since an investment property loan is still a mortgage, the lower the credit score is from 740, the higher the interest rate will be.
A credit score can also affect the second common requirement, savings. Mortgage lenders typically request the borrower to have 6-12 months of mortgage savings per property. However, other factors can change the amount required by mortgage lenders, including credit scores. A borrower with a lower credit score will need to show more savings than a borrower with a higher credit score.
Mortgage lenders may require borrowers to have prior property management experience before applying for an investment property loan. Different mortgage lenders will require different time minimums. As an example, Wells Fargo requires 2 years of property management experience.
What type of Investment Property Loans does Kingston Mortgage offer?
Kingston Mortgage offers a flexible investment property loan program to accommodate a variety of situations. For starters, we do not require prior property management experience to qualify for an investment property loan. While we do offer an investment loan program for those who do have prior property management experience, it is not a requirement to qualify for an investment loan. We can also provide different savings options depending on the borrower’s situation and the specific investment loan. Some of our savings options include no savings, 6 months and 12 months. In fact, our investment loan program does not require proof of income to be eligible for the program. Finally, there is no limit to the number of properties that you wish to finance.