25 Essential Facts You Need to Know Before Taking Out an Rental Property Loan
- What is a Rental Property Loan?
A rental property loan is a mortgage loan secured by a single-family residential property (1 to 4 units), or SFR, that is occupied by a tenant. This type of loan can be used for both long-term and short-term rentals such as vacation rentals, and is sometimes referred to as an “rental investment property” loan, non-QM loan, or investor “DSCR” loan.
- What are the Differences Between Investment Property Loans and Conventional Home Loans?
When applying for an investment property loan, the lender may be less interested in your personal income, assets, and employment history and instead focus more on your investment experience and strategy. Additionally, the loan has a lower maximum Loan-to-Value ratio (LTV) than a conventional home loan, with typical down payments at 25% versus 3%, and the interest rate and reserve requirements are higher. Documentation may be simplified and the loan can be taken out in a legal entity instead of a personal name.
- How Can I Finance a Rental Investment Property?
For serious real estate investors looking to build an investment portfolio, there are three main options: agency loans or GSE loans (Fannie/Freddie), local/regional banks, or an alternative lender like Capital Funding Financial. Additionally, it is possible to use owner financing or a hard money loan. Agency loans are the least expensive type of loan, but also the most complicated to obtain. Local/regional banks may not offer 30-year terms and often include prepayment penalties. Alternative lenders such as Capital Funding Financial offer 30-year terms, allow borrowers to hold the property in a legal entity, and come with prepayment penalties. However, they usually have higher interest rates and fees.
- What Credit Score Do I Need to Get Favorable Terms on an Investment Property Loan?
The credit score required to get favorable terms on an investment property loan will depend on the lender. Most lenders will want to see a good credit score; typically, above 700 is considered favorable. Additionally, lenders may look for a minimum loan amount, a certain amount of liquid cash reserves, and evidence of an investment strategy. Maintaining a strong credit score is essential for those looking to get more favorable terms on an investment property loan.
- What Other Factors Should I Consider When Considering an Investment Property Loan?
When considering an investment property loan, it’s important to make sure you understand all the loan terms and conditions. Make sure you understand your down payment and closing costs, your loan amount and type of loan, the terms and any prepayment penalties or discounts, the interest rate and APR, and the repayment schedule. It’s also important to understand your lender’s underwriting criteria, such as the loan-to-value ratio, debt-service coverage ratio and income verification. Finally, be sure to compare different lenders, their fees and rates, and take some time to read customer reviews before making a decision.
- What Type of Documentation is Required for an Investment Property Loan? A borrower applying for an investment property loan will be typically asked to provide income documentation, such as pay stubs, tax returns, and bank statements, in order to demonstrate the source of loan repayment. Additionally, they may need to provide proof of funds to make a down payment and closing costs, a home appraisal and title report, and evidence of homeowner’s insurance.
- Is an Investment Property Loan Easier To Get Than a Traditional Home Loan? Generally speaking, it can be easier to get an investment property loan than a traditional home loan because lenders may be more lenient with credit score and employment requirements.
- What is a Portfolio Loan? A portfolio loan is a specialized loan for real estate investors who plan on purchasing multiple properties at once, also known as a blanket loan. This type of loan allows investors to save time and money financing multiple investments at once, instead of having to secure multiple loans. Portfolio loans are often used by those with great credit who can get better rates than those offered by conventional lenders.
- What is a DSCR loan? Debt Service Coverage Ratio (DSCR) loans, also known as no-income mortgages, are a type of loan that are based on the rental property cash flow. This means that the lender will not consider the borrower’s tax or personal income documents, instead, the loan will be approved based on the rental income generated by the property. DSCR loans are a great option for investors who don’t have a steady income or have a low credit score as it doesn’t require income verification.
- Are Mortgages Tax Deductible for Investment Properties? Interest on a mortgage for an investment property, including rental properties, is tax deductible up to certain limits and restrictions. Additionally, other property-related expenses such as insurance, maintenance and repairs, management fees, property taxes, and HOA dues are often deductible as well.
- What Factors Influence APRs for Investment Property Loans? APRs for investment property loans are largely based on current interest rates, the length of the loan term, and the borrower’s creditworthiness. Borrowers with a good credit score, a low debt-to-income ratio, and a sizable down payment may get a better rate than someone who does not meet these criteria.
- Does Applying for a Loan Damage My Credit Score? It is important to note that applying for a loan does not automatically damage your credit score. However, if you apply for multiple loans at once, it could have a negative effect on your credit score. Additionally, if you are not approved for a loan, this could also hurt your credit score, so it’s important to be cautious when applying for loans.
- What Should I Avoid When Applying for an Investment Property Loan? It’s important to avoid making any big purchases or taking out any new credit before applying for an investment property loan since this could increase your debt-to-income ratio, resulting in a higher interest rate. Additionally, make sure you avoid lenders offering loans with hidden fees or very high rates.
- Are There Any Fees Involved in Applying for a Rental Loan? In some cases, there may be fees involved in applying for a rental loan such as an application fee for credit, background, tax certificate, title search, and initial underwriting review. Be sure to ask your lender in advance about any potential fees or costs associated with your loan, so you can plan accordingly.
- How Can I Increase My Chances Of Getting An Investment Property Loan? In order to increase your chances of getting an investment property loan, it’s important to maintain a good credit score and have a low debt-to-income ratio by paying off as much existing debt as possible. Additionally, having some cash reserves is helpful since lenders may require you to have some money set aside for unexpected circumstances.
- What Do I Need To Know About Being A Landlord? Before taking out an investment property loan, it’s important to understand all the responsibilities that go along with being a landlord. For example, landlords need to find tenants, collect rent, manage repairs and maintenance, and handle disputes. Additionally, as a landlord you’ll need to comply with all applicable laws and regulations in your state.
- What Should I Do in Case of Repayment Challenges? If you start to find yourself struggling to make the monthly payments on an investment property loan, the first step is to contact the lender to discuss alternative arrangements or loan modification options. Additionally, there are government resources and organizations like the American Mortgage Counseling Center that can provide resources and assistance with loan restructuring.
- What Happens if I Default on an Investment Property Loan? Depending on the terms of the loan and the state you live in, defaulting on an investment property loan could result in foreclosure proceedings being initiated. This could lead to legal actions, a lower credit score, and the property being sold at an auction to recover the loan amount. If you become late on the mortgage the best step is to reach out to the lender immediately and discuss a workout.
- What lender offers the best service and low rates on rental loans? Capital Funding Financial is one of the nation’s most highly rated mortgage lenders for real estate investors looking for a low rate rental loan.
- What Types of Rental Properties Does Capital Funding Financial Work With? Capital Funding Financial specializes in rental property loans for single-family homes and condominiums, as well as small multiunit investment properties and larger apartment buildings. They also work with commercial real estate investors, offering loan solutions for mixed-use buildings and other types of income-producing property.
- What Else Makes Capital Funding Financial Different? Capital Funding Financial isn’t just known for their easy and fast access to capital, they are also dedicated to helping real estate investors increase their success. Capital Funding Financial ’s team of specialists provide personalized advice and strategies to help you maximize your profits and find success in real estate investing.
- What Are the Typical Terms of Investment Property Loans? The terms of Capital Funding Financial ’s investment property loans vary depending on a number of factors, such as loan amounts, loan-to-value ratio and the acquisition costs of the property. Generally, the minimum loan amount is $75,000 and the maximum loan amount depends on individual project costs up to $25,000,000. Loan terms are typically between one to two years on the bridge program and thirty years on the longer term rental product. Capital Funding Financial offers both fixed and adjustable rates.
- Does Capital Funding Financial Offer Special Program Terms? Yes, Capital Funding Financial offers special programs with reduced monthly payments, customization options and more. Their portfolio loan program allows investors to make one payment for multiple properties, instead of having to make separate payments for each loan.
- Does Capital Funding Financial Offer Refinancing Options? Yes, Capital Funding Financial offers refinancing options for those looking to either reduce their interest rate, lower their monthly payments or access their home equity. This can be a great way to take advantage of lower interest rates or free up some cash to cover unexpected repairs or renovation expenses.
- What Is Capital Funding Financial ‘s Track Record? Capital Funding Financial is an established private lender with a track record of successful loan closings spanning over $250 Million. They are a trusted partner of thousands of real estate professionals across the country and have a deep understanding of the local real estate market.
If you are looking for a hard money lender who can offer low rates, close quickly, and not require any income docs or a minimum credit score, Capital Funding Financial is the perfect hard money lender for you.
Capital Funding Financial specializes in asset based private money loans on non-owner-occupied investment properties nationwide particularly in states such as Florida, California, Georgia, Texas, New York, New Jersey, North Carolina, Washington, South Carolina, Massachusetts, Maryland, Virginia, among others.
Capital Funding Financial is backed by a Family Office with over 1,000 Single Family Developments built across the United States and over 250 million deployed in closed hard money loans.
If you are a real estate investor, developer, mortgage broker, or individual who needs a FAST, RELIABLE, & HONEST PARTNER for rental investment, commercial, or multi-family properties… Contact us today for a complimentary consultation.
Obtain a pre-approval letter and soft quote for your scenario today.
Rental Loan Parameters:
|CLOSING TIME||7 – 24 days (based on the program)|
|LOAN SIZE||$100,000 to $25,000,000|
|LTV||Up to 80% LTV|
|LTC||Up to 90% LTC|
|LOAN TERM||1-2 or 30 Year Terms|
|AMORTIZATION||Interest-only payments or P&I|
|ORIGINATION FEES||1.00+ points based on location and property, LTV, credit worthiness of the borrower, loan amount and term.|
|LENDING AREAS||Nationwide with the exception of a few states|