You may be interested in buying an investment property if you want to diversify your holdings beyond stocks and bonds. Investment property loans typically have higher interest rates, larger down payments, and different approval requirements.
Also, you may have other expenses to consider, such as homeowners association dues, cleaning services, flood insurance, and utilities.If you’re ready to borrow for a residential investment property, these three tips can improve your chances of success.
1. Make a sizable down payment. Since mortgage insurance won’t cover investment properties, you’ll need to put at least 20 percent down to secure traditional financing. If you can put down 25 percent, you may qualify for an even better interest rate.
2. Be a ‘strong borrower’. Although many factors — among them the loan-to-value ratio and the policies of the lender you’re dealing with — can influence the terms of a loan on investment property, you’ll want to check your credit score before attempting a deal.
3. Shy away from big banks. If your down payment isn’t quite as big as it should be or if you have other extenuating circumstances, consider going to a neighborhood bank for financing rather than a large national financial institution.