Buying an Investment Home? Learn about investment mortgage interest rates!
Investment properties can bring you extra income to help you pay down your own mortgage, improve your lifestyle, or, if you're fortunate, even allow you to quit your day job and become independent. The thing is, unless you have really deep pockets, you're going to need a loan to buy that investment property, and also learn about mortgage interest rates for investment property.
Your Interest Rate
The home loan interest rates you get on your investment property is going to have a direct effect on your monthly payment, and therefore on your cash flow. There are essentially two types of investment property loans - residential and commercial. It's vital that you understand the difference before you go looking for an investment property loan in Orange County.
Residential Property Investment Mortgage Loans
Residential loans are for properties that contain four or fewer units. They're similar to an ordinary home mortgage, and the standards and processes for qualification are similar. Here's what your lender will consider:
- Debt to Income Ratio: Your debt to income ratio is your income divided by your total debt (including not just your mortgage, but your credit cards, car payments, and other consumer debt). If you make $6000 per month, and you owe $2000 per month, then your debt to income ratio is 33.33%. Lenders typically expect you to have a debt to income ratio of no more than 36%.
- Loan to Value Ratio: This ratio is determined by comparing the amount of the loan and the value of the property being purchased. Currently, a loan-to-value ratio is expected to be somewhere between 70% and 80%
- Credit Score: Typically, you'll need a credit score of at least 700 to get an investment property loan.
- Experience: You don't have to have experience as a landlord in order to get an investment property loan, but it does help.
Usually, a loan for a residential investment property will extend up to 30 years, and the mortgage interest rates for investment property will be very low - only a percent higher, tops, than you'll obtain on a home mortgage.
Commercial Property Investment Loans
Commercial loans are intended for properties with five or more units, and also for non-residential investment properties. A commercial property investment loan carries higher mortgage interest rates than a residential loan, a shorter term, and balloon payments are frequently due at about five years. The same basic standards are considered, but with a few twists.
- The Debt to Income Ratio: This is still important, but when you're considering huge loans for commercial property investment, the borrower's income from his or her job is never going to satisfy the payment if things go wrong. So the main consideration becomes whether the investment property can provide the necessary cash flow, and whether the investor has the ability and the experience to manage the business.
- The Credit Score: This becomes more important, and a commercial lender will expect a credit score of 720 or higher.
- The Debt Service Coverage Ratio: This is a concept that's unique to commercial investing - the lender considers whether the investment property will be able to generate cash flow.
- Experience: This takes on considerably more importance, although it is still not a requirement. However, the level of experience the landlord has will go some way to determining whether a loan is approved and home loan interest rates.
Finding an Investment Property Loan
It's not hard to find an investment property loan in Orange County, but getting good mortgage interest rates for investment property can be a little more difficult. Banks are usually the first "go to" source, but they can be very inflexible when it comes to mortgage interest rates. Credit unions are "not for profit," and may be more flexible. A portfolio lender may be a little more creative because they don't invariably sell their loans to Freddie Mac or Fannie Mae.
The ideal source for mortgage interest rates for investment property may be a mortgage broker, such as Arbor Financial Group - this is a company or an individual that can find you the best home loan interest rates for your investment property. A broker works on commission, and is usually paid by you at time of closing.
Getting an investment property loan isn't impossible. To get the best mortgage interest rates for investment property, though, you have to have good credit and be willing to shop around.