Owning an investment property is a great way to generate passive income. Not only is it safe compared to a fluctuating stock market, but it also allows you to receive either monthly money from rent or from a large sum when you flip a property. While this has many perks, it can be difficult to make the purchase initially because there is more red tape than with a traditional home purchase or even with a second home. In today’s blog, Family Home Loan Texas discusses how you can finance an investment property.
Pay With A Conventional Loan
One of the most common ways to pay for an investment property is with a conventional loan. This type requires a down payment of around 30%. While you may have paid 20% for your home purchase, properties that generate income usually necessitate more money down. Similar to the requirements you’re familiar with when buying a home, lenders will want to see your credit score, income, and assets. They will also want to be sure that you have enough cash on hand to pay six months’ worth of all your mortgage obligations. Yes, you will be making money from the investment property, but this isn’t factored into your debt-to-income ratio.
Use Existing Home Equity
Another way to fund an investment property is to use your home equity as leverage. To do this you can take out a home equity loan, in which you borrow against the equity you have built-in your home. You can also use a cash-out refinance to free up cash to purchase the new property. This works by refinancing your home with a larger mortgage. With this higher amount, you will pay off what is left of your previous one and pocket the difference between the two. You can then use this money to make a down payment on the new property. When you do this, you will also likely be able to secure a lower interest rate on your home.
Refinance An Investment Property
Once you purchase a property, you can still refinance down the road if interest rates drop or if you want to change the terms to a fixed-rate interest. This can be a great way to save money in the long run, but keep in mind that you will need to still provide a lump sum as a down payment on the new terms. You can either utilize a traditional refinance for a lower rate or you can opt for a cash-out refinance to fund renovations. Ultimately, you will need to calculate whichever works the best for your specific needs.
Contact Us To Learn More About Investment Properties
While investment properties are a great way to make more money, it can be difficult to fully understand the process of purchasing one. We are proud to be able to help with this process. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about how he and his team can help you through all aspects of buying a home or investment property.