An investment property loan is often referred to as a rental property loan. It is a type of loan used to finance the purchase or refinance of a property that is not intended for the borrower’s primary residence but rather for investment purposes. This type of loan is commonly used by real estate investors to acquire residential or commercial properties that they plan to rent out to tenants or to generate income through property appreciation.
Investment property loans typically have different terms and requirements compared to loans for primary residences. Some key features of investment property loans include:
- Down Payment: Lenders often require a higher down payment for investment property loans compared to loans for primary residences. A common down payment requirement is 20% to 25% of the property’s purchase price. Some lenders will go as low as 15% based on specific criteria.
- Interest Rates: Interest rates for investment property loans may be slightly higher than those for primary residences. The exact rate will depend on various factors, including the borrower’s creditworthiness and the loan terms.
- Debt Service Coverage Ratio (DSCR): Lenders may evaluate the property’s potential income and expenses to ensure that the property’s rental income is sufficient to cover the loan payments. This is known as the Debt Service Coverage Ratio (DSCR).
- Property Type: The type of property being financed may impact the loan terms. For example, loans for commercial investment properties may have different requirements than loans for residential rental properties.
- Lender Requirements: Lenders may have specific eligibility criteria and requirements for investment property loans, including credit score, financial reserves, or potentially previous real estate investment experience.
It’s essential for potential investors to carefully consider their financial situation, investment goals, and the specific requirements of investment property loans before pursuing this type of financing.
Read our other article, A Comprehensive Guide on How to Acquire an Income Property, to get more information on this topic.
Interested in an investment property? Consulting with one of our mortgage specialist so we can help navigate you in the process and find the most suitable loan option for your investment strategy!