Getting a Rental Property Loan: What You Should Know

If you’re in the market for a rental property, it’s important to know about rental property loans. There are a few different types of rental property loans, and each one has its own benefits and drawbacks. In this article, you will learn about things you need to know about rental property loans.

What Is A Rental Property Loan? 

This type of financial aid is specifically meant for rental properties. The lenders who give out 30-year rental loans know that rental properties are a stable investment. The fact that you’re looking for long-term financing is one of the things that will work in your favor when you’re applying for this type of loan.

Of course, there are some stipulations that come along with rental property loans. For instance, most lenders will only give you a loan if the rental property is going to be used as an investment property and not as a primary residence. This means that you’ll likely have to put down a larger down payment than you would for a traditional mortgage loan. 

Lenders also tend to want to see that you have some experience with rental properties before they’ll give you a loan. So, if this is your first foray into the world of rental properties, you may have a harder time getting approved for a loan. 

How To Apply For One?

In order to apply for a rental property loan, you’ll need to have good credit and income. You’ll also need to be able to prove that you can afford the monthly payments. The lender will want to see your tax returns and bank statements. 

They’ll also want to see a lease agreement for the property you’re looking to purchase. If you’re self-employed, you may need to provide additional documentation. Once you’ve gathered all of the required documentation, you can begin applying for loans.  

Requirements For Getting A Rental Property Loan 

The requirements for getting a rental property loan are a bit different than those for other types of loans. There is something you need to do before applying. 

Rental property loans typically require a higher credit score than traditional mortgages. If you don’t have a high enough score, you may not be able to get approved for the loan at all. You’ll also need to have a strong history of employment and income. Lenders will want to see that you have a steady job and can afford to make your monthly payments.

These aids usually require a larger down payment than regular mortgages. This is because lenders view rental properties as being riskier. They want to make sure you have skin in the game and are less likely to default on your loan. The size of the down payment can vary, but you’ll typically need to put down 20-25%.

The Different Types

There are multiple types of rental property loans you can choose from. These are the following:

• Agency Loans: These types of loans are backed by government-sponsored enterprises such as Fannie Mae or Freddie Mac.
• Bank Portfolio Loans: Banks offer these types of loans, which aren’t sold on the secondary market. Therefore, each bank can set its own guidelines.
• Hard Money Loans: Hard money loans have stricter requirements and are usually more expensive. They’re funded by private investors or companies instead of big banks.
• Bridge Loans: Bridge loans are shorter-term loans that help you “bridge the gap” until you can get long-term financing.
• Construction Loans: Construction loans are typically used to finance the building of a new home or other types of property.
• Permanent Loans: Permanent loans are also known as “take-out” or “traditional” mortgages.

All these types have different guidelines and requirements. It’s important to consult with a loan specialist to see which type of rental property loan is best for you.

The Down Payment 

The down payment needs to be paid upfront before the loan can be processed and is usually a percentage of the total loan amount. For example, if you’re borrowing $200,000 to purchase a rental property, the down payment could be $40,000. Some lenders may require a higher down payment, while others may offer programs that allow for a lower down payment. 

Interest Rates 

The interest rates of rental property loans are usually higher than traditional mortgage interest rates. This is because rental properties are considered to be a higher-risk investment by lenders. However, the interest rate you will pay on your loan will also depend on your credit score and the type of loan you choose.

If you have good credit, you may be able to get a traditional mortgage with an interest rate of around four percent. However, if your credit score is lower, you may have to pay a higher interest rate. For example, if your credit score is below 620, you may have to pay an interest rate of six percent or more.

Rental property loans are good financial aids to start a good life, but you’ll need to apply for one and meet the requirements. Learn about the different types and put down the down payment that the lender requires. Finally, make sure to learn about the interest rates as they may be higher. It’s a great help for anyone starting a new life!