Making the decision to purchase your first income property can be a big one. Investing in real estate is a great way to earn a passive income, however, it is important to understand the financial details.
Investment property mortgage rates can differ from first-mortgage rates and impact your credit. Read more to learn more about these rates!
Understanding Investment Property Mortgage Rates
When it comes to taking out a mortgage for an investment property, lenders may be less inclined to provide a loan than they were for your primary residence.
A second loan is generally considered to be a riskier investment because if you are going to default on a loan, chances are it won't be your homestead.
Take a look at a potential monthly payment and total interest amount using an online mortgage calculator tool.
How Rates Are Determined
Rates will change every day, so it is important to keep an eye on the market a little while before deciding to speak to a lender to wait for a low rate. Gather quotes from several different agents, and find out who is willing to lock in the lowest rate should you decide to move forward.
To the lender, this purchase is thought of as a business deal. The length of the loan may be shorter, and the down payment requirement higher.
Tax Benefits of Investment Properties
Not only can you make passive income with a rental property, but you can also rack up the tax deductions! Depreciation, mortgage interest, property taxes, repairs, and any other required expenses can be written off.
Determining the Right Loan for You
Before taking out an investment loan, it is important to view the types of mortgages and determine which would be the best for the property you want to purchase.
Run a rental analysis of the property you are interested in and see what your potential monthly income could be. If you want to make repairs to a property to earn more money, a different type of loan may be needed than one where you buy a home that is rental-ready.
A conventional mortgage is one that is handled solely by the lender. They determine the required down payment, interest rates, and terms of your loan.
If this is a second mortgage, there is going to be a higher down payment requirement - usually 15 to 20 percent.
Government loans like FHA, VA, or USDA are loans through a lender, with government backing. These types of loans usually have a lower down payment, but the interest rates are generally a bit higher.
The home you purchase must meet certain safety and security guidelines set forth by the government, so while you may want to purchase a "fixer-upper", it may not be allowed.
Hard Money Loan
If you are needing funds quickly, then a hard money loan is right for you. This type of loan is going to come with high- interest rates and fees, but it is a great option if you are able to pay the loan off quickly.
Becoming a Property Owner
Owning an investment property can be a great step to ensuring your family's financial freedom. But before you can rely on this income, it is important to make sure you are getting the best investment property mortgage rates possible.
If you are looking to start the investment property journey, speak with a knowledgeable associate at The Home River Group in Honolulu. They can help get you started with rental properties while providing helpful advice along the way. Contact them today to get started!