Nowadays, many people have heard that it was the right time to buy a rental property and decided that they would like to enter the real estate rental business (as a homeowner).
But, to enter the sector of rental investments, how to obtain mortgage financing for the purchase of your first rental property? It is true that it has become much more difficult to get funding these days; but for people with decent credit and sufficient income, there is still a lot of money to borrow. For reasons of terminology, when you borrow for a rental property, we talk about non-owner occupant financing. Let’s take a look at some funding issues, things, and suggestions that might help you.
Buy as owner occupant
The best way to get into the business of homeowners is to buy a house that makes sense as a rental property, but you buy it as a personal residence and you stay there for the 12 months required by a loan. As a homeowner, you benefit from the best financing terms and you may be able to save just 3.5% with FHA funding. The loan stays in place with the initial conditions when you leave and make a lease. This is the best way to go!
Other reasons, it makes sense:
- You move into the property and learn about specificities, problems, problems, etc. of the property and you correct them before moving and making a rental property.
- You also do the renovations and upgrades you need and you do not pay two housing allowances, as someone who buys a property and rehabilitates it just for rent.
- Finally, you are more selective and buy only the properties you want to live, it is a wise choice for investors; do not buy properties in which you would not live.
Then, after 12, 24 or 36 months, buy your next owner-occupied property and rent the original one. Then repeat and repeat, and repeat again every one to three years.
Buy as a rental property
Let’s say you just want to buy it as a direct rental property. First, you need a 20-25% down payment for most lenders (Fannie Mae and / or Freddie Mac may have about 10% investor properties, so check these too). And those 20 to 25%, plus closing costs and renovation costs, could represent up to 30% – 35% of the money in advance to close a third and get a rental loan. Thus, for a property of € 120,000, this could easily represent a cash requirement of € 40,000. This FHA loan at 3.5%, occupied by its owner, seems pretty good at the moment, huh?
As mentioned above, you must also have good credit and be able to benefit from the financing of a bank for an investment property. A good thing about rental properties is that the bank can include an estimate of the net rental income from the building to help your debt ratios on income, especially if you buy something with a tenant already in square. Talk to your lender.
Speaking of tenants already in place, there are also important benefits! For example:
- You get the seller’s security deposit at closing and prorated rent
- You probably receive the first month’s rent one month before your first mortgage payment
- There is no vacancy, so you do not need to find a tenant, and
- You probably will not need to rehabilitate the property before they leave.
The negative could be a lower rental rate than the market or a tenant who pays late, does not pay or does not take care of the property. But they could also be excellent tenants! Once you have escrowed, take a look around the apartment and talk to the tenant to determine if you want to keep it or terminate the lease at the end of it. Pass it on to the listing agent so that he can alert tenants in one way or another.
Rates, costs, fees on investment properties
The costs of doing everything Current mortgages are much higher than they were a few years ago. And non-occupying capital goods are even higher. Small loans, like those under 100,000 euros, involve very high fees, expressed as a percentage of the loan amount. Maybe up to 5% when you add loan origination points, fees, valuation, underwriting, title insurance, escrow fees, and so on. But the current rates are really very competitive and you can get Noa financing at 4.5% over 30 years. depreciable loan these days. And it’s very cheap because we are blocking a 30-year low rate loan for a rental property.
Where can you find loans?
At the beginning, you should meet two to three lenders and see what Noa loan programs they have for what you plan to buy. Try a bank or two, plus a mortgage broker or a matching lender and an online lender. Different lenders have different programs and a bank may reject you, but a mortgage broker may have a program that suits your situation. Check, then. Loan costs and rates also vary. We therefore advise you to obtain some estimates and compare them to find the best offer.
How many properties can you buy? If you have credit score (estimate your credit score) and gearing ratios on income (which change with each property you buy), you can easily finance up to four properties. Once you go over four to ten, the number of lenders you can finance becomes much smaller, but they are still there. Subscription criteria can also become much more severe, but still possible. Once you have exceeded ten loans, it is very difficult to find lenders who will finance and loan costs, interest rates and conditions will be less attractive, but nevertheless relatively reasonable. Lenders who make more than ten loans are called portfolio lenders.
In summary, it’s a great time to buy a property, but you need to find out about the property rental property, do your due diligence and not think that everything will be fine and hassle-free because Real estate is hard work. ! Let’s hope that the hard work you do and the problems you manage over the years will be nothing more than distant memories of your retirement, with a good flow of rental income.