When someone tries to buy a piece of property, whether it's commercial or residential, they often need a mortgage. It's not the same type of mortgage that's required to buy the home you live in. Lenders consider an investor mortgage more risky. Because of that, there are more rules and usually higher interest rates.
- Lenders typically require a much higher down payment on an investor's mortgage. That way, if you walk away, you are personally out a fair portion of the loan. On a personal mortgage, you might only put down 0 - 10%. On an investor's mortgage, that is more likely to be a minimum 20 - 35%.
- Mortgage rates have come way down again. But investor's mortgage rates are often going to be much higher. Depending on the length and type of loan, and how much qualifying you have to do, it could be as high as 15 - 20%. For a short term loan, that might be acceptable. For a longer term loan, that can certainly kill the profitability of your investment.
- There are a wide variety of organizations that are willing to loan money to investors. Some, like Fannie Mae, have well defined programs. You will be required to jump through a lot of hoops to get a loan. However, your rates will probably be much lower than some alternatives.
- Various banks and mortgage companies also lend to investors. They will each have their own set of rules and qualifications that you will need to fulfill. You can check most lenders' websites to get an idea of their requirements. You can also find a mortgage broker who specializes in investor mortgages. If you are going to do this often, a mortgage broker may be a valuable asset to help you find the most appropriate lender for each situation.
- There is also "hard money". This may be the easiest type of loan to get, but it is also the most expensive. These types of mortgages are usually for people who are going to turn the property around pretty quickly. You may pay 18% interest for the time you have the loan so you really don't want to keep it very long. However, you may have much lower documentation requirements. You will probably have to come up with a fairly high down payment though. A search for Hard Money Lenders can help you find some available lenders in your area.
Like most things, the more hoops you are required to jump through, the better the deal may ultimately be. But that may not always be the best for your particular situation. Regardless of your intent with the investment property, make sure you are dealing with a reputable lender. Try to get the best rate you can because you never know when you may have that property longer than you intended. And be prepared to provide a fair amount of documentation, even for hard money.
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