Investment Property Loan Guide

the Definitive Guide to Mortgages for Buy & Hold Investment Properties

As a real estate investor, you have different financing needs than the typical homebuyer. You might need higher-balance loans, more flexible qualifying standards or, in many cases, several mortgage loans at once.

At any rate, you need financing options that are catered to your unique needs — loans made just for investors and experienced real estate pros like yourself. But how do you find those loans, and what should you be looking for when you do? This guide breaks it all down.

What to Look for in an Investment Property Loan

If you’re a full-time investor, your bottom line relies on getting your properties up, running and producing income ASAP. Because of this, it’s important to find a loan option that offers efficient processing and lightning-fast closing times. After all, the quicker you can close that loan, the closer you are to making a profit off that property.

Your investment loan should also:

  • Let you use the income/cash flow from the property to help qualify
  • Offer flexible credit score requirements
  • Provide jumbo and high-balance options

A loan that doesn’t require tax returns is also ideal. For most investors, tax returns don’t reflect the true amount of cash flow they have coming in and can make it harder to qualify for a loan.

What to Determine Before Applying

Before you apply for an investment loan, you’ll need to hammer out some details first. This will allow you to find the best-fitting mortgage option for both your investing goals and your current financial scenario.

Specifically, you’ll want to determine:

  • Will you fix and flip or buy and hold? Some loans are better suited for one option over the other. Make sure you know your long-term goals for the property you intend to purchase.
  • How much can you put down? Most investment property loans require at least 20 percent down, though some require even more. Know how much you’re able to put down and how you’ll source those funds before settling on a loan.
  • How will you need to qualify? Do your tax returns accurately reflect your income? Do you have W2s, pay stubs or an employer to verify your income? Is your credit score low? Depending on your financial and employment situation, you might need a bank statement loan if you are self-employed or other option that offers more flexible qualifying standards.
  • What type of property will you be buying? Some properties aren’t eligible for every loan (think co-ops, manufactured homes or time-shares). You’ll also what to determine how big the property is and how much it will cost, as this will factor into your loan options as well.

Essentially, you want a clear picture of what you’re working with, as well as what you’ll need from a financing standpoint. This will allow you to home in on the best-suited loan options for your goals and portfolio.

How to Improve Your Chances of Getting That Loan

If you’re worried about being approved for an investment property loan (maybe your credit score is low, or you have several mortgages out already), there are a few things you can do to improve your chances.

First and foremost, you can make a bigger down payment. Most investment loans don’t allow a loan-to-value ratio of more than 80 percent, so plan on a 20 percent down payment no matter what. But if you can go over that (think 40 or 50 percent), then you present a much smaller risk to the lender and therefore have a higher chance of getting approved. Remember, if you have other investment properties you’re currently holding, you can always tap their equity to help fund the down payment on new purchases.

Other ways you can improve your chances include:
Having strong account balances — Bank statements that show solid cash flow and income are great ways to instill confidence in a lender and prove you can make your payments. Some lenders may ask for anywhere from 12 months to 2 years of statements in order to verify your full income.
Proof of past successes – If you’re a seasoned investor, showing proof of your past, profitable investment properties can also improve your financing prospects. Some lenders may even allow you to use your new property’s future income in order to qualify for your loan.
Have plenty of cash and liquid reserves – Cash reserves are vital when applying for an investment property loan. Lenders want to know you have a financial safety net should things go south on one of your properties, and the bigger that net is, the better. Aim to have at least enough cash (or liquid assets) to cover 6 months of your new property’s mortgage payments before applying for your loan. If you have more than that, it can only improve your chances.

Finally, working to improve your credit score can never hurt. Make sure you’re paying your bills on time, every time, and settle any accounts that have gone to collections. You should also pull your credit report annually and report any errors you see. These steps can all improve your score and your chances of securing a loan.

Could i5 Work for You?

At Sunray Mortgage, we’ve created an investment property loan designed to minimize red tape and maximize opportunity. Dubbed the i5 Investment Property Loan, it’s ideal for investors looking to buy and hold income-producing property.

The i5 loan requires 20 percent down and a minimum 640 credit score. Investors can close in as little as three weeks and need no tax returns or income calculations in order to qualify. To learn more about our i5 Investment Property Loan, reach out to a Sunray Mortgage expert today for more info.

Other Financing Options You Might Consider

If our i5 investment property loan isn’t the right fit, there are still other financing options you can consider for funding your new purchase.

Investors often choose one of these routes when looking to finance a new property:

Fix and flip loans – These are designed for purchasing fixer-upper properties — ones you intend to renovate, remodel and then re-sell on the open market for a profit. They’re short-term loans that help you purchase the property and cover the costs of renovations.
Tapping home equity – If you have a big portfolio, then you can use a cash-out refinance, home equity loan or home equity line of credit to tap the equity in one of your existing properties. Then, use that cash to cover the down payment and closing costs for your new investment.
Hard money loans – These are loans from private investors. They’re typically only for short-term use and come with higher interest rates than conventional and other loan options do. These investors may be more flexible on credit score and income requirements than banks and traditional lenders.
Seller financing – This is when the seller agrees to finance the purchase for you. Instead of paying a lender back over time for the loan, you’d pay the seller back — plus interest — over time.

Do you need help determining the best way to finance your investment properties? Just want to know your options? Sunray Mortgage is here to help. Contact one of our loan experts today to learn more or get started.

To learn more about investment property mortgages or to get a quick quote for a investment property home loan, contact a Sunray Mortgage loan expert today. We’re here to help.

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