Simply put, an investment loan is money borrowed by individuals or companies looking to invest in properties that are rented or fixed up and resold. Investment properties can be residential or commercial as long as the property is not the investor’s primary residence.
While different home loan programs can be tapped to purchase an investment property, a conventional loan is often the preferred choice because rates are typically much lower than with a specialty loan product. Qualified individuals have access to 10 conventional loan spots. After exhausting those 10, you may be allowed an additional 25 loan spots under specialty products.
Whether you want to buy properties at a distressed purchase value to renovate and sell for a profit or you plan on expanding your rental portfolio, the allure of investment loans lies in the opportunity to potentially earn huge returns and invest more than you could when using your own money.
From a lender’s standpoint, the loan amount is based on the lender’s loan-to-value requirements. Typically, hard-money lenders will finance 60% to 80% of the property’s estimated after-repair value (ARV). Conventionally speaking, however, the loan you are going to accept as a cash-out refinance will be at 75% of the ARV, as set by mortgage loan providers Fannie Mae and Freddie Mac. For example, let’s say you can negotiate a purchase price of $110,000 and the estimated repair costs are $55,000. If the ARV of the property is $200,000, the lender would finance up to $150,000.
In addition to conventional loans, it is possible to use government loans, such as those provided by FHA, VA and USDA programs. If you meet the qualifications, you can get up to 100% of your investment property financed with no down payment. It is noteworthy that these programs have specific eligibility requirements and some limitations.
At Ridge Lending Group, we do loans for primary residencies, FHA, VA and USDA, and we offer a variety of specialty (portfolio) loans. Whichever path you choose, mortgages on rental properties often require a credit score of 640 or higher. Regardless of the exact score, you could pay higher interest rates if your score is below 740.
For helpful tips on improving your credit score for more favorable investment property loans and terms and all things investment, subscribe to our YouTube channel. You can also contact us regarding commercial properties by calling 855.747.4343 or sending an email to firstname.lastname@example.org. Also, visit our website for any additional questions related to investment property funding and real estate investing.