Since many of our readers own investment rental properties (carpet cleaning and rental properties go hand in hand), we thought we’d call in an expert to contribute with a guest post. Did you know that you can take out a mortgage on a rental property? According to Frank Del Priore of Mortgage Brokers Niagara, a mortgage on a rental property can be a fantastic option for people who do not have the funds required to buy the property outright. By taking out a mortgage on your rental property, you can make money on the property, while making payments, before finally being able to take on full ownership. Again, this can be an incredibly worthwhile investment as long as you know what you are getting into.
First things first, you are going to want to make sure you have an impressive credit score (660 is considered a good score, but a score like 580 may still secure your loan); and if you have incurred a lot of debt, it would be in your best interest to try paying it off in order to bolster your credit score, and make the mortgage application process much smoother. Then, if you have a property you are already interested in, or are just in the early stages of considering this type of investment, create a budget. You are going to need a down payment, the more you can afford to put down, the better, as this will also help lower your monthly payments. A minimum down payment of 20-35% is pretty much ideal to start with, so if you were looking at a $500,000 property you would want to have a down payment of $25,000-$50,000 or more. Next, you will have to consider closing fees, which can be about 2%, and any other one-time fees that may be involved.
While banks and credit unions can help you in securing a mortgage for a commercial or residential rental property, you can also apply for your mortgage through a mortgage broker. They will act as your intermediary to arrange and negotiate the terms of your mortgage, and may, in turn, be able to secure you a much better deal than a bank or credit union. This is because mortgage brokers work to find a bank/credit union, or a direct lender, in order to find the best deal for a client’s specific loan. You may have to pay fees to your mortgage broker, but this is a hurdle that is ultimately worth it, because using a broker assures that you will find something within your budget.
Applying for a mortgage on a rental property can be a lengthier process than say, applying for the mortgage on your first home; as the home would be your primary residence and occupied by its owner, whereas a rental property has another party living in it, one that could potentially cause damage and adversely affect a property’s value. This poses as a riskier investment for a lender, and in return the borrower is held to a higher standard, meaning you should be prepared to show things like your proof of income, and any liquid reserves/assets you may have; typically a six-month reserve would be ideal, should anything go wrong with your rental property.
So if you’re interested in purchasing a rental property, reach out to a mortgage broker near you and get the process started! Be sure to come back here and get the latest info on carpet cleaning after you’ve purchased the property!
Many thanks to Frank Del Priore, Mortgage Broker Niagara, for contributing to this article.