Getting A Mortgage On A Rental Property

In many ways, real estate remains one of the safest and most stable investments around. It has been said that land will always be valuable because there is only so much of it to go around. This is true, and many homeowners find themselves purchasing investment properties such as houses, duplexes or apartment buildings. This investment can not only provide a steady monthly cash flow, but it can offer a great opportunity for capital appreciation as well.

In some ways getting a mortgage on a commercial or rental property is similar to taking a mortgage on a home, but there are some important differences. For one thing, the bank or lending institution will probably require a higher down payment for a rental property. While many homes can be bought with as little as 5% or even less as a down payment, it is very unusual for lenders to accept such a small down payment on a second home or rental property. It is common for the lender to require a down payment of 25% or 30%, depending on the property. In some cases the down payment requirement will be higher, and in some cases it will be lower, depending on the location, condition, price of the property and other factors.

The loan officer at the bank will also want to see documentation of the rent roll on the property, including information on tenants and vacancies. A history of utility bills and real estate taxes may also be requested. The real estate agent showing the property should be able to easily obtain this kind of information. It is important for the institution making the loan to make sure that the property is financially viable before they lend you the money to purchase it. Of course you as the buyer should also be sure to make sure the numbers make sense before you make an offer.

Just as with a traditional residential mortgage, it is a good idea to get pre-approved for the mortgage on your investment property. A pre-approval letter in your hand will serve as proof to both the agent and seller that you are serious about buying an investment property and that you will be able to afford it.