Buying an Investment Property

There are risks in purchasing new property but more so when it comes to investment property. While the advantages of having a rental home can be very promising since it can result to a desired residual income, financing the purchase is one of the biggest roadblocks you have to overcome. That first deal tends to be the toughest one to manage. If you become successful in financing your purchase with the right set of tools, you will find yourself able and willing to get more.

Before heading to the bank or a lender of any kind, you have to be prepared and secure your finances. Your financial health will be examined as with any investment strategy.

Credit conditions

Since lenders will look at your credit report, make sure that you have ironed out all the details especially errors. This could increase your credit score considerably. However, do not feel that having a perfect credit is everything you need. There are still some ways you can finance your investment property purchase with less-than-perfect credit score. In fact, some lenders are willing to offer a loan even with a borderline score but of course, not without conditions.

When it comes to credit, a score of 740 can prove to be a safe number for someone who wants to finance an investment property. If your score is below 740, be prepared to spend more out of pocket. Lenders will be adding a higher interest rate as your score goes lower. While it is possible to find lenders willing to take a risk on your investment property purchase, they also want to make sure that they will be able to cover losses so higher interest rates are applied. Also, in certain lending transactions, your investment and personal bank reserves are included in the process. Lenders want reserves for the properties so that even if you have vacancies, you will be able to float the mortgage payment.

Making a down payment

When it comes to buying an investment property, borrowers need to put a down payment. The reason is that mortgage insurance will not cover rental homes and other investment properties so lenders may require a 20% down payment. The rule of thumb is to give at least 25%. The reason is that a higher down payment can lead to a better rate of interest in the long run. A down payment is a good thing if you have the money initially, just make sure that it is your actual money. Borrowing money for down payment is bad since this means you cannot truly afford an investment property and you might get caught in a downward spiral of debt.

If you really cannot make a down payment, you can opt for a second mortgage but be aware that the risks are higher and lenders might not approve of it since it is a rarity for lenders to offer second mortgages to investment properties.

Owner financing

The economic conditions has made owner financing a more acceptable way of buying an investment property. With owner financing, the buyer has to purchase the investment property directly through the seller, be it an entity or an individual. This happens if the person cannot find a mortgage lender to finance their purchase. In this case, the seller opts for this financing strategy if he or she finds it difficult selling the property. Owner financing covers only a portion of the total price and a small amount would be from a bank loan. This is a good option to consider but should not be your first choice because the seller often asks for a much higher down paymen. It is uncommon for the lender to ask for a 20% down payment or more. Also, the deed is still held by the seller until the payments have been completed. If the deal goes smoothly, both parties can benefit from the transaction. The lender can get consistent cash flow, while the buyer can save on closing costs and other risks.


It is possible for buyers to forego making any down deposits when buying an investment property if they have sufficient home equity. Equity is the difference of the buyer’s market value to the balance of the mortgage. If you have been living in your home for several years already, there is a great chance that you could have built some equity throughout the years. You can use this amount in financing your investment property purchases. If the buyer meets all the requirements from the bank, a lender can secure 80% of the property. The remaining 20%, you can manage using your home equity. It is possible to access 80% of the equity. However, it is very important to know that you have to pay that loan to your home in the fastest possible time since it is tax effective. Thus, be ready to pay more when you deplete your home equity. You can opt to make a down payment from your own savings, and only use a small percentage of equity so that you do not have to risks higher taxes in the long run.

Preparations when buying an investment property

Now that you know your options when it comes to buying an investment property, it is time to prepare yourself and be ready to begin the process of buying an investment home.

  • Understand the property you want to purchase. It is possible that you can get a wealth of financing options with an investment property but it all depends on its geography and condition. It also matters what you plan to do with the investment property. The best way to clear this up is to talk to a financial advisor. Is this going to be a rental home? Be honest because you should get the right assessment for whatever purpose you have for the property. Call an investment property, an investment property.
  • Get your paperwork done. You need your bank statements, investment accounts, paychecks, government issued identification cards (license and social security), tax returns, and other financial statements.
  • Get the right people on board when buying an investment property. A realtor can ensure that the contracts are worded properly. An accountant will help you with taxation concerns and strategies. A real estate lawyer who can help you in keeping your assets stable.
  • Get a pre-approval letter from a lender. This makes it easier to get your foot to the door when it comes to hunting for homes. This also helps in increasing your negotiation opportunities.

Buying an Investment Property Conclusion

Not all people who want to try their hand on buying an investment property have enough money for down payment. Try getting a loan from a broker or neighborhood bank instead of going to the big named financial institutions. Expand your options when it comes to buying an investment property since at the end of the day, you want to make sure that you get the best interest rates and better financing structure. A mortgage broker might also be able to help you since ideally; they should be well versed with loans and other financing products.

Buying an investment property can be tedious for anybody. However, it is really promising to get a property that you can generate some income from especially if the location is good and there is a demand for it. You need to have clear intentions about your investment property purchase. Lack of insight about buying a property, especially in choosing a good financing instrument could lead to more damage to your finances in the long run. With the right knowledge, you can secure a deal and ensure financial success in the long run.

How to buy an investment property:

If you are considering buying an investment property, Nations Choice Mortgage can help you begin the process of applying for a loan. Nations Choice Mortgage has a well-trained team of mortgage specialists that are always available to help you make the best decision with your mortgage-related needs. We understand that choosing the right type of mortgage for your needs is a big decision and we are always here to help you make an informed choice.

To begin applying for a home loan all you need to do is search rates and you will receive a personalized interest rate quote. You can then choose the type of loan and interest rate which fits your needs best. Your mortgage application can also be completed online using our advanced online mortgage application. If you have questions anytime during the online application process, feel free to contact us and we will provide you with all the information you need.

Instant Mortgage Rate Help

Loan Amount: How much do you want to borrow? Example: 150,000 (You can borrow up to 100% of the purchase price of your home. You will find better interest rates at 95%, 90%, and 80% progressively.)

Property Value: This is the purchase price of your property or your best estimate of the appraised value of the property. Example: 175,000.

Loan Type: Selecting Refinance WITH CASH OUT may increase your rate. If you want some extra cash to pay the closing costs on your new loan, this would NOT be considered receiving extra cash.

Escrow/Impounds: Allows you to pay 1/12 of your annual property taxes and homeowners insurance with your mortgage payment each month. Escrowing your taxes and insurance will lower your points by .25%

Property State: Specify the State where the property is located

Property County: Specify the County where the property is located

Todays Rates: These rates are based on the following criteria..

Instant Mortgage Rates

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