Investment Property Loan: The Investment Property Financing Process
What is an Investment Property?
An investment property is purchased with the intent to generate rental income or a return on investment on the future sale of the property. Thus, an investment property loan is a mortgage on real estate that is considered an investment property.
Investment Property Financing Requirements
Investment property financing is different than getting a mortgage for a regular purchase. Requirements for an investment property loan may include:
- Larger down payment
- Different loan size requirements
- Different underwriting guidelines
An investment property loan interest rate may be higher than a rate for a different loan program.
Benefits of Buying an Investment Property
It is important to weigh the risks and benefits before investing. Investment properties offer several personal and financial benefits. Property owners may choose to rent the property to provide for additional cash flow, take advantage of the tax benefits, and build their investment portfolio.
What are the Different Types of Property Ownership?
There are three types of residential property ownership: primary, secondary and investment.
Primary: A primary residence is a property that you occupy for the majority of the year, is sensibly located near your place of employment and suits the needs of the occupants. You typically need to occupy the residence within 60 days of closing on the loan and have to live at that property for at least one year after closing.
Secondary: A second home or a vacation home is a residential property that is suitable for year-round occupancy, but is only actually occupied for a portion of the year. Typically, for most second home property financing, rental income cannot be used to qualify for the loan.
Investment: An investment property is owned, but not occupied by the borrower. Rental income can be used in an investment property loan qualification.