Purchasing an Investment Property?With recent media attention and television shows that focus on buying and/or flipping (buying distressed properties and remodeling), there has been an increase in property investment purchases. These investors know the benefits of buying an investment property. Whether they rent them out to tenants or they flip a distressed property, buying another home can generate passive income for a homeowner. Because restrictions or tightened guidelines have come to mortgage lending companies, many investors are looking for alternative ways to finance their purchase. By researching all of your available options, you will be able to find a way to finance your potential investment property. Below are some options that may be available to you:
Conventional Conforming Mortgages
The rules will vary depending on whether an investor owns 4 or less financed residential properties or 5-10 financed residential properties. Before applying for a loan, make sure that you have your bank/asset and income paperwork in order. Lenders will require your last 2 years personal Federal tax returns. If you currently own rental property and will need to use rental income as qualifying income, it should be reported on your tax returns. Many investors set up LLCs or partnerships for managing rental property income and expenses. Copies of those returns will be required as well. Also, it is a good idea to obtain a current copy of your credit report as lenders will also have FICO requirements for investment mortgages that may be higher than those scores required for a simple owner occupied transaction.
Private Portfolio & Hard Money Lenders
Investors that flip properties must have short term cash to complete the majority of their purchases. Often, they are attending courthouse auctions to buy foreclosed homes. Many times, they obtain loans from private lenders at high interest rates and costs. With this type of loan, investors are under pressure to sell the house as quickly as possible.
You may choose to finance your investment purchase by using the equity in your primary residence as collateral. You can borrow the money from your primary home to pay cash for your investment property.
If you own additional properties, you can use the equity in multiple homes to finance your next purchase by using cross-collateralization. Some lenders will use your primary residence, as well as second home equity as security when buying an investment property.
How have you financed an investment purchase?
Please comment or email me at Ingrid.Quinn@cobaltmortgage.com or visit my websites at http://www.scottsdalemortgageexpert.com or http://www.cobaltmortgage.com/ingridquinn.