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What are Your Mortgage Options When Buying an Investment Property?

investment-property-mortgage-loans

If you are venturing into Tampa’s thriving real estate market, make sure you’re prepared.

Why so? Well, it’s quite simple.

Investing in real estate can be a profitable venture, but only if it’s done the right way.

Owing to factors like the low cost of living, job opportunities, population increase, and tourism, Tampa’s property market is growing strong. Which is great news for property investors.

Moreover, since property prices are still favorably low in Tampa, it’s understandable why buying an investment property might be a wise move.

Now, for most investors – especially new ones – who want to buy rental properties, financing is one of the biggest hurdles.

And if you are one of them, you’re probably wondering; where can I get funds to buy an investment property?

If so, have you considered applying for a mortgage?

This post covers all the best mortgage options for people looking to buy a rental property in Tampa, Florida.

 

Best Mortgage Options for Tampa, FL Investment Property Buyers

There are many types of mortgage loans available for rental properties. Read on to find which is right for you.

 

1.     VA (Veterans’ Authority) Mortgages

In terms of requirements, down payment, and interest rates, VA mortgages are the best. But, the catch is that these types of real estate investment loans are for military personnel – both retired and currently serving – only.

According to the National Association of Realtors, at least 74% of military personnel currently serving and 54% of veterans have bought property using a VA mortgage.

Generally, the veterans’ authority issues a maximum of $424,100 per loan. And applicants can apply for more than one loan. They can apply up until they reach what is known as the entitlement limit.

So, what requirements must be met to qualify for this type of mortgage?

VA mortgage conditions and requirements: 

  • No down payment
  • Applicant must be a veteran, currently serving, or their surviving spouse
  • The borrower must reside in one of the rental units for not less than a year
  • The investment property can be a duplex, triplex, or a building with up to 4 rental units
  • Lastly, the property has to be move-in-ready and approved by a VA house appraiser

Pros:

  • Very generous interest rates
  • No down payment
  • Lenient terms

Cons:

  • The applicant is expected to reside in one of the rental units for a period of not less than a year
  • It only applies to military personnel

veteran-rental-property-loan

 

2.     Federal Housing Administration (FHA) Insured Mortgages

If you are new to the industry, an FHA-insured mortgage would be your best option. But, why do people refer to it as FHA-insured?

That’s because the FHA doesn’t issue mortgages, the FHA-approved lenders do. Instead, the FHA insures real estate lenders against losses.

Meaning, that banks can comfortably issue investment loans to high-risk applicants without having to worry about them defaulting.

Moreover, these mortgages come with very low interest rates and low down payment requirements. Let’s take a look at the features and benefits for this type of loan.

FHA mortgage requirements and conditions:

  • The property must be owner-occupied. This means the borrower will be expected to reside in one of the rental units
  • Applicants must have a credit score of above 500
  • A down-payment of above 3.5% for the investment property.

Pros:

  • It is an investment property loan with a low-down payment.
  • Generous interest rates
  • No limitations in regards to their current number of mortgages

Con:

  • Must be owner-occupied with no more than four rentable units

 

3.     Conventional Mortgages

Now, if you don’t qualify for a VA mortgage or your FHA loan application fails to pull through, you can opt for a conventional mortgage.

Basically, these are housing loans from private lenders like banks and mortgage companies.

On average, a conventional loan is cost more than a VA or FHA mortgage; while at the same time cheaper than hard money and investment property mortgages.

Here’s what you need to apply for this kind of mortgage.

loan requirements and conditions:

  • Borrowers must put down at least 20% as a minimum down payment for the investment property
  • They must have an 80% minimum Loan-to-Value ratio
  • Their credit score must be around 740
  • They should have at least six months’ worth of cash or assets reserved
  • Applicants shouldn’t have more than four mortgages

Pros:

  • Available for all kinds of applicants given that they meet the requirements above
  • Cheaper than investment property and hard money mortgages

Con:

  • They can be costly for high-risk applicants. In this case, a high-risk applicant is someone who has a low credit score, poor debt repayment history, a smaller down payment, or a low LTV just to mention a few.

investment-loan-conventional

 

4.     Investment Property Mortgages

When it comes to investment property mortgages, the requirements often get a bit strict and pricy.

Moreover, getting this kind of loan is never easy. Applicants must meet a number of requirements in order to get approved.

Due to their strict nature, failure to meet these requirements may lead to the loan application being denied.

Investment property loan requirements and conditions:

  • An impressive credit score – over 700
  • Good debt-to-income ratios
  • More than 20% as a down payment
  • Sufficient documentation including W2s, pay stubs, and tax returns
  • Cash or asset reserves worth at least six months of the monthly mortgage repayment amount
  • Less than four current mortgages

Pros:

  • It’s a good mortgage option for those with an impressive financial profile
  • Some of the requirements can be ignored as long as the rental property shows great potential profit-wise

Cons:

  • Very strict requirements
  • Hard to get and expensive
  • Has a four-mortgage limit

 

5.     Hard Money Mortgages

If you are looking for a fast loan, a hard money mortgage would be your best option. These mortgages are ideal for investors dealing with time-sensitive purchases.

That’s because most applications are processed and approved within a very short period of time.

In terms of requirements, these loans are very lenient. In fact, anyone can apply for such a loan regardless of their credit score, the number of mortgages, or debt-to-income ratio.

Pros:

  • Fast processing and approval – often within 48 hours
  • Very little requirements
  • Easier to qualify than other types of mortgages

Cons:

  • Insanely high interest rates ranging from 9% to 14%
  • They have a 25 – 30% equity requirement
  • Short repayment period of between 6 months and 5 years

hard-money-investment-property-interest-rates

In conclusion, try and get to know all you can about these different types of mortgage options. It is the safest way to find one that suits you best. All it takes is a little bit of research to find a good mortgage option to finance your Tampa investment property.

Posted by: stephenfox on January 28, 2019
Posted in: Uncategorized