3 Things You Need To Know When Financing A Rental Property
Rental properties are an excellent way to bring in extra income. Over time they can help increase your financial stability and offer a steady source of income for years. While there are various reasons why buying a rental property is an attractive prospect, there are a few differences when it comes to financing. Taking out a loan for a rental property differs from taking out a mortgage for a primary residence. Here is what you need to know about financing a rental property.
You Have Options
The first thing that you should know if you plan on financing a rental property is that you have different options available. Conventional loans are a popular way to finance a rental property. These types of loans are what investors are likely to be the most familiar with. However, lender requirements for conventional loans tend to be stricter for those who are purchasing a rental property. If you already own a home, you may be able to take advantage of your equity to buy an investment property. A home equity loan is an alternative way to finance a rental property.
You Need Funds
Another thing to consider when financing a rental property is that you will most likely need a significant amount of cash on hand. Lenders tend to require much higher down payments for rental properties than they do for primary residences. If you are investing in a single-family home, your lender will likely require up to 25 percent as a down payment. If you're buying a multi-family property, you may need to put down up to 30 percent. Having cash set aside for a down payment is essential.
It's More Than Just Your Mortgage Payment
Another thing that you need to know if you are financing a rental property is that there is more to it than just your mortgage payment. You'll want to factor in costs such as taxes, insurance, and also maintenance into the decision making process. Make sure that you will be able to afford everything, not just the mortgage payment. You'll need to be able to charge enough for rent to cover all of these costs and still make a profit.
If you are financing a rental property, there are a few things that you need to know. First, you have options when it comes to financing. While conventional loans work well, there are other ways you can finance this type of property. You'll also want to have a significant amount of cash set aside. You'll likely need to put a substantial amount down when financing a rental property. Finally, there's a lot more to consider than just your potential mortgage payment when investing in a rental property.
To learn more information about rental property loans, reach out to a professional near you.
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