Mortgage Alternatives When Investing in Rental Properties

Rental properties make excellent revenue sources for any ambitious investor. Even the most seasoned investor might, however, find it challenging to navigate the purchase of a rental property. This is particularly so when applying for a mortgage to fund your investment. Financing the purchase of rental property using a mortgage is not as straightforward as the purchase of a primary residence.

Mortgage lenders in San Antonio are, for instance, more stringent for rental property mortgages, and the interest rates they advance are often higher. In general, you can expect the rate of your rental property mortgage to be 0.5-0.75% higher than that of your primary residence. This is mainly because lenders consider investing in rental properties to be risky as most borrowers quit if the investment is not what they envisioned. Even so, you can still get a mortgage that best suits your circumstances if you get the right lender. Here are tidbits on your alternatives for rental property mortgages.

Conventional Loans

Conventional mortgages might be the best choices for new investors. The mortgages work in much the same way as the ones you take for your primary residence. The minimum down payment, in most instances, is 15% for these loans. It, however, is advisable to make a 20% down payment. This way, you will avoid the payment of insurance for the mortgage.

Government-Backed Loans

You might qualify for a government-backed loan for your rental property if you have a credit score of over 580. The standard loan types, in this case, are VA and FHA loans. These come with low-interest rates and can even have their down payments at 3.5 percent. Government-backed loans might not be the best ones for first-time investors, but they can give you a much-needed jumpstart if you are short on funds. They work best for duplexes and large properties, which you can rent part of and live in the rest.

HELOC

You can also borrow a rental property mortgage against the equity of your primary residence. The HELOC {home equity loan} is your go-to option in this case. You should, however, remember that you risk losing your primary residence if you do not meet the payment of your HELOC. If you do not have enough equity to finance your rental purchase fully, consider borrowing 20 percent of your purchase price with the HELOC. This money can then be used to get a conventional or government-backed mortgage.

Portfolio Loans

These are ideal for seasoned investors who want to invest in multiple rental properties at once. This is because portfolio loan lenders will offer better terms when you mortgage multiple properties. The loans work best for single-family rentals in a new community or blocks of residential properties. You should, however, expect to pay higher rates than you would for other mortgage options.

Real estate is currently the most powerful and reliable option for wealth generation. The decisions that come with your investment might nonetheless be paralyzing. Thankfully, the above tidbits have now eased and boosted your odds of making the right choice for a rental mortgage.