These are just like your regular home mortgage, except that they may require larger down payments, charge higher rates and ask you to demonstrate significant cash reserves, as described above. There are several different types of loans available. Conventional lenders limit borrowers to four mortgages, though Fannie Mae has a program that can finance up to 10.
There are limits on how many mortgages you can have at one time. In some cases, they may ask for a business plan projecting rental income and capital appreciation for your investment property. Investment lenders typically ask to see your credit report, assets, cash reserves and income statements. It may take longer than a home mortgage to get approved-and you’ll likely need more documentation. Most banks ask to see enough money to pay housing costs, like loan payments, insurance and taxes for six months. You’ll need to have cash reserves on hand, as well as a down payment. You’ll have to pay all closing costs upfront. Down payments of 25% to 30% aren’t unusual. Mortgage insurance isn’t available on investment properties, so you’ll probably have to put down at least 20%. Lenders will demand larger down payments. Interest rates are typically one to three percentage points higher for rental properties than primary home mortgages. As a result, you’ll face some constraints: Real estate investment loans are inherently riskier than conventional mortgages because it’s easier to walk away from an investment than your primary home. Real Estate Investment Loan Considerations If the economy slows down and vacancies rise, you’ll still be on the hook for loan payments and interest, as well as operating expenses, even though less money is coming in. A drop in the value of your property will hit you harder if you’ve borrowed to buy it. That’s the power of leverage.īorrowing also increases risk, though. A 10% increase in your property’s value becomes a 20% increase if you’ve only put half down. That means that any returns would be magnified, whether they come from rental income or rising real estate prices. The first and most important reason to seek financing is because you don’t have enough cash for the full purchase price however, there can be other benefits to taking out a loan.īorrowing-or leverage, as the financial experts call it-allows you to make a bigger investment with a smaller initial outlay. It’s important to understand the nuances of these loans before you sign on the dotted line. 
Rental property loans can provide the capital you need, but they’re not exactly the same as conventional home mortgages.
Investing in real estate requires capital, whether you’re buying a vacation condo to rent out, a single-family home for leasing, or a multi-story apartment building.
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