Redding’s Home Investment Loan Professionals

Are you looking to invest in a second home?

Whether you are looking for a second home, an investment home to create an extra source of income, or a vacation home, you will need an appropriate loan to accomplish your goals. Depending on your situation, there are different loans to select from. Choosing the right one, with acceptable interest rates, and low costs are essential to making a great investment.

There are different ways that your down payment can be structured in order to give you a quick and beneficial return for your investment. Many people have even qualified for a down payment under 20%. Our team can help sift through the options with you.

Wide Range of Home Investment Loan Options

Investing in additional properties as a way to make money can be a smart business decision, especially when the property is located in an upward trending real estate market. However, few people have the liquid assets to purchase investment property out of pocket. They will need to take out a loan to do so,and there are several loan options available to them.

Loans for Purchasing a Second Home

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Many homeowners want to invest in a second home simply to have another home to use. For example, some homeowners want a vacation home, while others may prefer living in one place during certain times of the year and another place the rest of the year. Some homeowners may want to live a bi-coastal lifestyle. Whatever the case may be, loans are available to those who want to purchase a secondary home for their own use and as a future investment.

Investment Loans for Building a Property Portfolio

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Homeowners looking to build a portfolio of properties typically purchase more than one home. These houses can be rented out or renovated and slowly sold off based on their appreciation in value. The more houses an investor owns, the more potential revenue streams they will have.

One thing borrowers should keep in mind is that conventional lenders typically won't approve of additional investment loans once a borrower has four mortgages on their credit. There are special loan programs that will allow between five and ten mortgages on the credit of a borrower, but these programs often require a significant liquid reserve of payments as well as large down payments between 25 and 30 percent. A credit score of at least 720 will be required in such a case as well.

Short Investment Loans for Active Property Investment

Most Common Home Investment Loan Type is the Conventional Loan

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Because you can not use government programs for this type of loan, a conventional loan is an appropriate option. The structure of your conventional loans can vary depending on your specific situation but there may be options to lower you down payment to be under 20%. However, your credit will be one of the biggest factors that affect the interest rate that you get.

Unique Considerations for Investment Loans

A borrower taking out an investment loan is doing so to make money. However, because there are several strategies to make money off an investment property (such as flipping the property or renting it out), it’s important that the borrower considers a few things first before taking out an investment loan.

Catering to Your Investment Strategy

A borrower buying a house to flip it might want to consider taking out a hard money loan, which is essentially a short-term loan. Such loans typically have lower interest rates but much higher monthly payments since they are short-term. The borrower flipping the house won't be holding on to that property for very long, so such a loan can be beneficial.

However, borrowers that plan on buying multiple properties to rent out will want to look at longer-term loans that don't require high monthly payments. Whatever the investment strategy is, the loan should make sense for that strategy.

Balancing Repayments with Expected Rent Returns

For borrowers who are renting out their properties, identifying how much revenue they will net monthly will be key. It would be counterproductive for the borrower to take out a loan that will cost more monthly than what they will receive in rental profits.

Ensuring Adequate Cash Flow

Inadequate cash flow can put a borrower into debt quickly. It's not just about making enough in rent to cover monthly mortgage payments--it's about having the cash flow necessary to comfortably cover all expenses of owning a property, including property taxes, routine maintenance, emergency repairs, insurance, and more. Additionally, tenants come and go.

The borrower must have enough cash flow to cover mortgage payments even if their property is uninhabited for a period of time. Not to mention that borrowers who are building their property portfolio will need adequate cash flow to cover things like down payments, closing costs, renovations, and more for every new property they invest in.

Understanding the Collateralization Process

Investment properties are riskier for lenders because if they are not profitable for the borrower, they may not be able to meet mortgage payments. Residential property investments are less risky because the borrower is not depending on making a profit off the property to pay the mortgage. As a result, most lenders will require that the borrower put up the investment property they are purchasing as collateral. If the borrower can no longer make payments, the lender then has the right to take ownership of that investment property.

For borrowers who have more than ten investment properties in their portfolio, they may have to take out a blanket loan. Blanket loans are secured against multiple properties. Because of this, the borrower should find out what happens if they only want to sell one of the properties under that blanket loan.

Fixed* Versus Variable Terms

Home Investment Loan Rates

The interest rates on investment loans will vary based on numerous factors, including the borrower’s credit score, cash reserves, loan terms, and more. However, interest rates on investment properties will be higher than those on houses being bought for use as a primary residence. Although conventional lenders often quote investment loan rates as roughly 0.25 to 0.5 percent higher than their homeowner loans, it’s not uncommon for the rates to actually be between 1 and 3 percent higher.

Here are a few questions that borrowers often have concerning investment loans:

How Does Mortgage Insurance Work for Investment Loans?

Mortgage insurance is not available for investment loans. This means that borrowers applying for an investment loan for an additional property that will not be their primary residence will be expected to pay at least 20 percent of the home's price as a down payment*.

How Can I Calculate My Maximum Borrowing Power?

Many factors help determine the borrowing power for an investment property: the borrower's income (which can include revenue streams from rental properties or property sales), the equity they have in other investment properties (as well as their own primary residence), and their repayment history on previous home loans.

How do Down Payments Work for Investment Loans?

For loan examples and more information visit our disclosure page at https://www.uslendingcompany.com/disclosures/

Our team can help answer any questions.