What To Know About Secure Financing For Your Rental Property

Are you looking to purchase a rental property and need to secure financing? If so, you may not know that it is different from getting a traditional loan for your primary residence. Here are some things you should know about secure financing for a rental property.

Expect More Strict Requirements

The barrier of entry to get a mortgage for your primary home is one of the easiest ways to secure financing, since there is likely a loan product out there that will work for your needs. However, things are a bit different when you try to secure a conventional loan for a rental property. Expect the requirement for a down payment to be much bigger than what you paid for your primary residence and that the credit requirements will be higher. Taking on a second mortgage is a big deal, and lenders will want to make sure that you are prepared for the financial obligation.

Know About Residency Requirements For FHA Multi-Unit Financing

Is the home that you want to buy a multi-unit building? Be aware that there are certain requirements for owners of the building if you want to use an FHA loan. It is common to require the buyer to live in a unit within the building for a minimum of a year. If you do not end up using a unit as your primary home, you won't qualify for this type of loan.

Consider Non-Recourse Financing

A viable option for some investors is to use non-recourse home financing. What makes this loan different is that the lender is putting their name on the property that you are purchasing, and you only have to pay back the mortgage from the profits that you make from the rental property. The main thing to know with this financing is that it is quite rare to secure. The only situation that this will be allowed is if you are buying a rental property with tenants that are already living in the building, so the lender knows that it will instantly generate rental income.

The downside to using non-recourse financing? Expect to provide a sizable down payment and to pay a higher interest rate for this type of loan. You may also be required to supply some type of collateral to secure the loan.

Have questions about securing financing for a rental property? Meet with a local lender of rental property loans for more information.