Landlord & Investor News

What You Need to Know About Finding the Best Loan for Investment Property

This isn’t going to be a satisfying answer, but the truth is that the best loan for investment property financing depends on several factors. Every lender, every piece of property, every investor has a unique situation, so there is no single “best” option.

However, you can find the best loan for your investment goals with the right approach. Here are three critical factors you need to consider before determining what type of loan is best for you.

• Property location: Depending on the lender or type of loan, your property’s location is critical to being approved. Conventional mortgages on apartment complexes, for example, require the investor to live in the same county as the property. Some banks may have similar restrictions.

• Minimum requirements: Different types of loans have different requirements for qualification. Conventional mortgages and blanket mortgages may require you to submit a credit check and income verification, where stated income loans may only require credit and a bank statement.

• Income projections: If you are applying for certain types of investment property financing, your rental income projections may be considered as a legitimate method to repay the loan. These types of loans are hard to come by, though.

Certain lenders have restrictions on your LTV, as well. That means they can only lend a certain percentage of the value of the property, so you’ll need to cover a down payment.

3 Ways You Can Find the Best Loan for Investment Property Financing

It’s a good idea to start with your investment goals and rental income projections. Even if you don’t need the projections to qualify for a loan, you will need them to determine if investment property financing is worth it or not.

1. Determine the type of property you want to purchase.

Some lenders can only finance certain types of properties. Blanket mortgages, for example, are only available if you want to purchase multiple properties at one time. If you want to purchase an apartment complex, you might have several loan options to choose from.

The type of property you want to finance is critical to finding the best option for you. Airbnb loans might not be available with certain lenders or in certain states, and this can drastically narrow down your loan options before you even begin searching.

2. Figure out what type of loan you are going to need.

Once you know what type of property you want to purchase, you’ll need to figure out the type of loan that is best for you. For single-family homes, you might be able to get conventional mortgages, hard money loans, or home equity loans depending on your credit and goals.

If you want to invest in multiple properties at once, you’ll pretty much have one option — blanket loans. This means your search will be relatively quick compared to someone searching for the best single-family home investment tool. It also means you’ll have fewer options and less flexibility.

3. Make a list of every loan’s costs and features.

Now that you have a list of potential lenders, you’ll need to do the tedious part. You want to create a chart or spreadsheet that lists the APR, length of the loan, and any other loan costs. You might also want to include any features or benefits the lender offers.

Remember those rental income projections from earlier? This is where you need them. Calculate how much the loan will cost you over the entire term — including monthly payments and any other associated fees — and then compare that to your projections to see if the loan makes sense.

Tips for Finding the Best Loan for Investment Property

You can take the approach of following the above steps closely, or you can use an approach that is more suitable for your goals. There is no “one-size-fits-all” approach to choosing the best loan for investment property financing.

Before you start applying or even start researching, review these tips to make the process a little less frustrating and time-consuming:

• Be flexible about your options: You might live in an area that has limited access to certain types of loans. You could also have a credit history or income situation that requires a little more creativity from lenders. The more flexible you are, the better your chances of succeeding.

• Research your rental market: Your rental market is as important as the stock market. You want to understand not only the average rental prices where your property is located but any distinguishing features you can add to boost the monthly rent you charge.

• Determine your investment goals: The right type of loan depends on your goal. If you just want to invest in property to remodel and sell it to someone else, hard money loans might be a better option than a long-term conventional mortgage. Your goals are critical.

This isn’t a quick investment decision. You need to have a solid plan to create a steady income stream from the investment property.

How to Choose the Right Investment Property Lender

With your list and these tips, now you are ready to start applying. You want to apply for the top three lenders on your list. This will give you a few options to compare and let you know whether this is a feasible opportunity or not.

If you’re having a hard time deciding between very close offers, consider reading through client reviews or testimonials to see how others feel about a specific lender.

Looking for the best loan for investment property financing? Rental Home Financing has an extensive selection of loan options that can help diversify your investment portfolio.