3 Factors to Consider When Buying a Rental Property: Loans Edition

Are you looking to buy a rental property? If so, the process can be daunting. With the real estate market in a boom, many people are looking to buy rental properties. There are many factors that go into buying a rental property, and they’re not all financial. To help with this process, here are four factors to consider when buying a rental property: Loans Edition!

What is a Rental Property Loan?

Finding the right hard money lender can be the difference between a successful rental property purchase and an unsuccessful one. Hard money lenders are specific to private lending, meaning that they do not work with banks or credit unions. They make their own underwriting decisions about your loan application. This means you cannot rely on the bank’s judgement when it comes time for them to make a decision!

Why Should You Choose a Hard Money Loan?

Hard money loans are typically “interest-only” loans. This means that the monthly payment is less than you would pay for a bank loan, and that most of your payments go towards interest. However, this means that they are also typically much shorter loans – many only last 12-24 months!

As a real estate investor who purchases distressed properties for the purpose of fixing them up, then putting them on the market for a profit, you might find yourself in need of a rental property loan.

3 Factors to Consider Before Obtaining a Rental Property Loan

While there are many different types of loans available to investors, one popular option is called hard money lending. Hard money lenders are specific to private lending, meaning that they do not work with banks or credit unions. They make their own underwriting decisions about your loan application. This means that the loan is mainly based on collateral.

Here are 3 factors to consider while researching real estate loan options:

1) Do you have enough cash on hand for the down payment?
In many cases, the hard money lender will require between 10%-25% down payment. So, before you decide to go through with a loan, check your finances and your budget to ensure that you can afford the initial down payment. If you do not have sufficient cash, consider asking a friend or family member to co-sign your loan application and help with the repayment. The hard money lender may require that you use their preferred title company for closing so ask about these fees as well before applying.

2) Do you qualify for government loan programs like FHA or VA financing?
Because of the variety of loans available to real estate investors, you should also consider if you qualify for government loan programs like FHA or VA financing. These loans are designed to help first-time home buyers or those who may not have perfect credit. The government provides specific guidelines for borrowers seeking these loans, including the minimum down payment required and other eligibility requirements.

3) How much can your family afford monthly in terms of mortgage payments, taxes, insurance and maintenance costs?
Loans obviously require a financial investment. Consider the amount of payments, taxes, insurance, and maintenance costs. Being an investor comes with risks, however, if you consider these factors and can afford the financial investment, then it is time to take action.

Final Thoughts

There are many things to consider when obtaining a rental property loan. The information we provided should be helpful as you navigate the process and make your final decision about what is best for you and your needs. Priority Investor Loans is here to help. We offer competitive rates, excellent personalized services, and our dedicated team can help guide you through your loan process. Call us today!

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