Taking Out a Loan for Investment Properties? Learn How

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T A K I N G O U T A L O A N F O R I N V E S T M
E N T
P R O P E R T I E S ? L E A R N H O W
B Y L E V E L F I N A N C I N G
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Buying a house can be an attractive investment
for everybody and not just for a professional
real estate investor, but for anyone looking for
an opportunity to earn passive income. Here are
some of the main benefits. You can enjoy a
predictable rental income stream. Your property
can appreciate over time, and you can resell it
at a higher price. Real estate investments can
make your portfolio more diversified and less
risk-oriented. Managing your investment does not
require a lot of work. You can benefit from tax
breaks or deductions. The property can be used as
collateral to obtain a loan.
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F I R S T M O R T G A G E O N I N V E S T M E N
T P R O P E R T I E S
This is the most common loan people use when
buying properties. It can be used for both
houses you plan to live in or as an investment
property loan. Its usually repaid over a long
period of time, which can be as high as 30
years. Several financial institutions and
specialized lenders provide this type of loan. A
mortgage loan officer will usually assist you
during the application process. First mortgages
require a down payment. A large one would lower
the interest rate you pay on the mortgage with a
positive effect on the overall borrowing cost.
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Finally, its wise to apply for a conventional
mortgage when your credit score is in good
shape. If its below the low 600s, its a good
idea to take actions that improve your credit
before applying for a mortgage. The best
conditions are usually available to borrowers
whose credit score is above the low 700s. All
these factors being equal, mortgage lenders offer
different interest rates to borrowers.
Therefore, its advisable to search for different
lenders and compare their offerings to spot the
most attractive ones. Dont overlook additional
fees. Sometimes theyre hidden between the terms
and conditions and can significantly impact the
total cost. Some of these fees may be tied to
your already existing loans. Ask your mortgage
loan officer for a detailed list of all the fees
included in the contract.
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H O M E E Q U I T Y L O A N F O R I N V E S T M E
N T P R O P E R T I E S
This type of loan lets you borrow a lump amount
against the equity in your home. Its considered
a second mortgage, as it allows you to borrow
against an existing propertys value. The loan
can then be repaid at a fixed interest rate in a
period ranging from 5 to 30 years. Based on data
provided by Investopedia, most home equity loan
providers will lend you up to 80 of your homes
current value. This percentage is known as the
combined loan-to-value ratio. For example, if
your current homes value is 400,000 (and you
have no current debt), you will be able to
borrow up to 320,000. Of course, many people
have existing first and/or second mortgages on
their current properties.
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Other factors, such as your current income and
credit score, will also affect your eligibility,
as well as the interest you have to pay on the
loan. A home equity loan can be used to finance
any type of purchase. Therefore, it can also be
used as an investment property loan, whether you
want to resell the real estate after at a higher
price or generate long-term rental income. It
can be the right move when you dont have
enough cash reserves you dont have time to save
money you have accumulated significant equity in
your home
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H E L O C F O R I N V E S T M E N T P R O P E R T
I E S
Unlike home equity loans, a line of credit sets
an amount of available cash that you can use at
your discretion. You will then have to repay the
outstanding balance within a certain period of
time, usually at a variable interest rate. Yet
just as in a home equity loan, you will need to
use a current property as collateral to obtain
it. Your collaterals value also determines the
amount that you will be able to borrow. In
short, a HELOC is like a credit card backed by
the value of a property you own. After your line
of credit has been approved and you have found
an investment property to buy, there are two
available options.
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You can use it to cover the down payment on a
conventional mortgage (ideally, your HELOC
provider will be the same as your mortgage
provider). You can use your HELOC to finance the
investment property in cash (partially or
totally). Because of its variable interest rate,
opening a HELOC to finance real estate
investments can be a clever option if you foresee
a general decrease in interest rates. Its also
a solution to consider if you plan to renovate
your investment property to increase its value.
As opposed to borrowing a lump sum, opening a
line of credit allows you to decide more
flexibly how much you will spend on home
remodeling.
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T H A N K Y O U

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