No Result
View All Result
  • Home
  • Business
  • Marketing
  • Finance
  • Home and Garden
  • Education and Career
  • Fashion and Beauty
  • Health
  • Tech
  • Home
  • Business
  • Marketing
  • Finance
  • Home and Garden
  • Education and Career
  • Fashion and Beauty
  • Health
  • Tech
No Result
View All Result
No Result
View All Result
Home Finance

Getting a Loan for Rental Property: The Requirements

by Miles Austine
in Finance, Real Estate
0
0
SHARES
74
VIEWS
Share on FacebookShare on Twitter

For property investors who are just getting started on their investment journey, the first hurdle they have to scale (and there are many) is how to finance the purchase of their investment property. For most of these new investors, the only option is an investment property loan.

Buying a rental property costs a lot of money, and most investors don’t have the cash to buy a property outright. As an investor in this position, LREShomes.com advises you should know that the process for getting an investment property loan is very different from that for getting a loan for your home.

It is more difficult to get approval for a rental property loan because lenders view these loans as riskier. The reason is the higher default rates for investment mortgages. As a rule, borrowers are more likely to default on an investment property loan than their home mortgage.

To guard against potential losses, lenders work to ensure that only the most qualified applicants can assess these loans. They will look at several factors – mainly your credit history and current financial position – to decide whether you qualify.

What do lenders want to see before they give you money to invest in a rental property?

1. A good credit score

This is an assessment of how committed you have been to meeting your obligations to creditors in the past. Incidents of late payments or out-and-out defaults will dent your credit history and lower your credit score. Lenders expect an absence of defaults in your credit history to extend an investment property loan to you. As a rule, they want a minimum credit score of 620, although some lenders will accept 600. But to get the best loan terms, a score of 740 and higher is recommended.

2. Down payment

Down payment requirements for rental properties vary. Typically, you should expect a minimum of 20%, but you can get away with paying as low as 3%. Any down payment below 20% will require you to buy private mortgage insurance. There are two major down payment options for rental properties:

Buying as an Owner-Occupier: If your rental has 2-4 living units and you plan to live in one of them, you qualify as an owner-occupier. Owner-occupiers get better terms because they are less likely to default on their loans (since they live in the building). They also often invest in better quality buildings and are more diligent in caring for their rentals. Owner-occupiers are allowed to put down as little as 3.5%, especially if they use FHA financing.

Buying as a non-owner-occupier: If your property is a straight-up rental – you do not plan to live in it – expect a down payment of 20%-25%. In reality, the actual amount can get as high as 30%-35% when you include closing costs, escrow, and property renovation costs. It is also possible to pay just 10% if you can buy a Fannie Mae or Freddie Mac investor property.

3. Proof of income

Lenders require proof of adequate income earned sustainably. Salaried employees will be asked to provide pay stubs and a letter of employment no less than 30 days old. Some lenders will want to see completed tax returns. For self-employed applicants or if you earn income via commissions, you will be asked to show proof of income for the past 2-3 years, along with the financial statements for your business. Self-employed applicants must show their business registration documents or a website URL.

4. Debt-to-income ratio (DTI)

This measures your ability to make the mortgage payments while still being able to pay your living expenses. Lenders want to see if you will have enough cash to comfortably sustain two mortgages monthly (your home and the rental property). To check your DTI, lenders look at how much cash you have left every month after you have met your obligations to your creditors. The ideal DTI to aim for is somewhere between 36% and 45%.

5. Proof of funds

You will be required to show evidence that you have enough money to make the down payment on a rental. The funds must come from verifiable legit sources and they cannot be borrowed. Furthermore, you must show proof that you have enough cash to pay for the closing costs on the loan. Finally, lenders want to know that you have a rainy day fund: enough cash reserves to cover 3-6 months of mortgage payments on the rental property and your home.

Based on the above, do you still think you will qualify for that investment property loan? If you said NO, it does not mean you cannot fulfill your dream of becoming a real estate investor. It means you should devise a plan or look for alternative ways to reach your goals.

Previous Post

Benefits of Owning Rental Properties

Next Post

Real Estate Investing: How it Works and How to Get Started

Miles Austine

Miles Austine

Next Post
Real Estate Investing: How it Works and How to Get Started

Real Estate Investing: How it Works and How to Get Started

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

How to Prep New Baby Clothes Before First Wear

How to Prep New Baby Clothes Before First Wear

12 hours ago
5 Pros and Cons of PayPal From a Small Business Owner’s Perspective

5 Pros and Cons of PayPal From a Small Business Owner’s Perspective

1 day ago
What You Should Look for in Thai Classes in Bangkok

What You Should Look for in Thai Classes in Bangkok

1 day ago
How to Read and Understand Your NDIS Plan: A Step-by-Step Guide

How to Read and Understand Your NDIS Plan: A Step-by-Step Guide

2 days ago
Is full fibre broadband worth it? A UK homeowner’s guide

Is full fibre broadband worth it? A UK homeowner’s guide

3 days ago
Timeless Elegance of Solitaire Diamond Necklace for Every Occasion

Timeless Elegance of Solitaire Diamond Necklace for Every Occasion

5 days ago
Boosting Structural Integrity in Architecture through Expert Masonry Services

Boosting Structural Integrity in Architecture through Expert Masonry Services

3 weeks ago
Learn How To Buy House In OAE Without Law Issues and get OAE loans for it

Learn How To Buy House In OAE Without Law Issues and get OAE loans for it

4 years ago

Get Blogo is a web magazine platform. Our aim is to provide trending information. So that, our readers get benefited from this website. Our team is here to provide the latest news and information on different topics.

Category

  • Animals
  • Apps & Software
  • Automotive
  • Biography
  • Business
  • Celebrity
  • Education and Career
  • Electronic & Gadgets
  • Entertainment
  • Fashion and Beauty
  • Finance
  • Fitness
  • Food and Recipes
  • Gaming
  • Health
  • Home and Garden
  • Instagram
  • Jobs and Services
  • Law
  • Lifestyle
  • Love and Relationship
  • Marketing
  • Miscellaneous
  • News & Politics
  • Nursing
  • Outdoor
  • Parents and Children
  • Politics
  • Real Estate
  • Reddit
  • Social Media
  • Sports
  • Tech
  • Tips and Tricks
  • Travel
  • TV Shows
  • Writing
  • Trending
  • Comments
  • Latest
Drew Pritchard Wikipedia – Wife, Divorce and Antique

Drew Pritchard Wikipedia – Wife, Divorce and Antique

March 7, 2023
Catherine Southon Wikipedia, Cancer, Husband and Children

Catherine Southon Wikipedia, Cancer, Husband and Children

July 15, 2024
Catherine Southon Wikipedia, Cancer, Husband and Children

Catherine Southon Wikipedia, Cancer, Husband and Children

0
Drew Pritchard Wikipedia – Wife, Divorce and Antique

Drew Pritchard Wikipedia – Wife, Divorce and Antique

0
How to Prep New Baby Clothes Before First Wear

How to Prep New Baby Clothes Before First Wear

June 5, 2025
5 Pros and Cons of PayPal From a Small Business Owner’s Perspective

5 Pros and Cons of PayPal From a Small Business Owner’s Perspective

June 4, 2025
  • About
  • Team
  • Privacy Policy
  • Editorial Policy
  • Terms & Conditions
  • Contact

Copyright © 2025, Get Blogo

No Result
View All Result
  • About
  • Contact Us
  • Disclaimer
  • Editorial Policy
  • Get Blogo – Web Magazine
  • Home 4
  • Home 5
  • Privacy Policy
  • Team
  • Terms And Conditions

Copyright © 2025, Get Blogo