Have you thought about investing in a rental property in order to boost your income? Purchasing a rental property in order to resell it or rent it out to tenants can serve as a great way to increase your incoming flow of cash, but it can also cost a significant amount of money. If you are interested in buying a rental property in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, Foundation Mortgage is here to help. Continue reading to learn more about the various loan options for rental properties.
Using a Conventional Loan To Finance Your Purchase
Conventional loans, (which conform to Fannie Mae and Freddie Mac’s guidelines and are not backed by the government), are a popular way to finance an investment property. Mortgage lenders will want to make sure that a borrower is able to afford both the mortgage on their current home as well as mortgage payments for the rental property. A borrower’s eligibility for a conventional loan and the type of interest rate they are able to obtain will depend on credit history and score. Most lenders will prefer to see that a borrower has at least six months worth of savings in order to ensure that they can afford mortgage payments. It is important to note that a lender may require a down payment of 30% for an investment property instead of the traditional amount of 20%.
Getting a Hard Money Loan
Hard money loans are primarily used to fix and flip a property, and are considered short term mortgages. A major benefit of using a hard money loan to finance a property is that it can be less challenging to qualify for than a traditional mortgage because a lender is more concerned with how profitable the property is rather than a borrower’s income level or credit. Although sometimes simpler to obtain, it is important to understand that hard money loans tend to have shorter term lengths and higher interest rates.
Utilizing the Equity of Your Home
Another option to help finance an investment property is by tapping into your home’s equity with a home equity loan, cash-out refinance, or a home equity line of credit, (also known as a HELOC). If you are interested in buying a second home, it is possible to borrow up to 80 percent of your home’s equity. There are some factors to consider when utilizing your home’s equity to finance another property. If you opt for a HELOC, the interest rates vary, so you could potentially end up paying a higher rate if the prime rate changes. With a cash-out refinance, your mortgage terms could be extended, which could result in you paying more interest.
If you are interested in learning more about your mortgage options for an investment home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today for a consultation.