primary home<\/a>. Investment properties do not usually have mortgage default insurance which means if an investor is to default, the bank won’t be protected.<\/p>\n<\/p>\n
For this reason, banks and lenders see rental property as a riskier asset for them to invest in with a loan. To offset the risk, the bank will usually charge a higher interest rate. In fact, many mortgage lenders will not offer financing for an investment property at all.<\/p>\n
How much higher are investment property mortgage rates?<\/b><\/h2>\n
Your mortgage rates will likely be higher for an investment property than for the same property bought as an owner’s residence. In fact, if you are buying a property with rental units but you also plan to live in it, you will still not face the same restrictions as a pure investment purchase. Your interest rates for an investment property may be as much as 0.6% higher than a standard mortgage.<\/p>\n
However, this gets a little more complicated in terms of the actual increase in funds needed. For one, investment properties usually have a larger down payment, which can mean better rates in general. Even with a higher rate, an increased down payment may offset the costs. In addition, investors tend to be smart with their money and probably have healthy credit scores which can also help them receive relatively better rates.<\/p>\n
Investment mortgages are also usually not forced to purchase mortgage insurance unless your particular lender requires it. For low down payment mortgages, this insurance often costs thousands of dollars upfront or more as interest accrues over time.<\/p>\n
Finally, investors may be able to collect sizable rents from an investment property or use their expanded cash flow to pay down their mortgage much quicker, mitigating the effects of higher interest rates.<\/p>\n
What kind of mortgages are available for investment properties?<\/b><\/h2>\n
Though there are a few differences between a conventional mortgage and investment property mortgages, your options for mortgages will be very similar. Due to the facts mentioned above such as high down payments and good credit, you will likely have many options available in terms of how you want your mortgage to be.<\/p>\n
Investment mortgages are able to be both fixed or variable rate. The amortization period you choose will decide on how much you want your monthly mortgage payments to be. This is helpful if you plan on having tenants who pay rent, as you can coordinate your rent income with your monthly payments. Investment mortgages can use any of the standard amortization periods all the way up to 35 years. The process of monthly payments, mortgage term length, and interest compounding will be the same as a traditional mortgage as well.<\/p>\n
How rental income factors into your mortgage and debt coverage ratio<\/b><\/h2>\n
Lenders will often require you to have a certain debt coverage ratio before you get an investment property mortgage. This ratio is found by dividing your net operating income by your debt service amount. However, lenders may also factor a rental offset into this ratio.<\/p>\n
Essentially, they assume you will collect a certain amount of rent once you purchase the property. Lenders will offset a percentage of your rental income against your loan payment, and any leftover income can be included in your debt ratio.<\/p>\n
Financing a rental property<\/b><\/h2>\n
One of the biggest things you need to know if you want to finance an investment property is that your down payment has a higher minimum than the normal 5% minimum down payment on homes. Mortgages for investment property are required to pay a minimum of 20% down unless you plan on living on the property.<\/p>\n
There are also some other requirements that some lenders will place on your mortgage. For example, some lenders will require a minimum net worth, often $100,00 per property, before they will lend to you.<\/p>\n
<\/p>\n
Because financing for rentals can be more complex than owner-occupied homes, it\u2019s best to contact a mortgage broker to help you find the best deal. The broker will handle all the work of tracking down different lenders and rates and present you with only your best options. You can even find a broker who specializes in investment property and they will bring the most amount of expertise to the table.<\/p>\n
If you are hoping to purchase a property for the rather than renting, you will have the hardest time getting financing. Due to the rapid turnaround on flip houses, most buyers in this field choose to finance the entire cost of the home without a lender.<\/p>\n","protected":false},"excerpt":{"rendered":"
Buying real estate is one of the most popular additions to an investor’s portfolio. Investors are attracted to real estate for its long-term stability, high return on investment, and potential rental income. In recent years, the number of homes being bought for the purpose of investment, often for rentals, has exploded. According to recent statistics, […]<\/p>\n","protected":false},"author":21,"featured_media":27510,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[9],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/9379"}],"collection":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/comments?post=9379"}],"version-history":[{"count":6,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/9379\/revisions"}],"predecessor-version":[{"id":26588,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/9379\/revisions\/26588"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/media\/27510"}],"wp:attachment":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/media?parent=9379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/categories?post=9379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/tags?post=9379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}