What is a mortgage for investment property?
Investment property is a property, residential or commercial, which is used for rental purposes. If a person does not have enough cash to pay the property, he will generally have to obtain a loan called Mortgage for Investment Real Estate to complete the purchase. The most common types of mortgages are fixed rate loans, mortgages adjustable rates (weapons) and balloon loans.
Mortgage for fixed assets is one that charges the specified interest rate throughout the loan. This type of loan is often preferred because the consistent amount of payment facilitates budgeting. The loan period may be determined on any length agreed by both parties, but the most commonly used increments are 15, 20 and 30 years. Shorter loans have larger payments, but lower interest rates, because creditors consider these loans less risky. An investor who is more concerned about maintaining low payments and improving his immediate cash flow can opt for a long -term period.
arms JEjina mortgage with investment real estate, which can be attractive to the debtor due to lower initial interest rates. This type of mortgage is associated with the financial index value and rates will be regularly increased or reduced to reflect the market fluctuations. The advantage for the creditor is that the holder of the mortgage is the party that carries the risk of changes in money costs, while the creditor carries this risk in a conventional loan.
The balloon loan is used primarily if the buyer intends to own a property for a limited period of time, plans to refinance or expects to receive a large influx of cash at the end of the period. This loan has lower interest rates and amortize the entire amount, so the payment is lower until the payment of the balloon is due, usually in five to seven years. Many balloon loans have the opportunity to convert to a mortgage with a fixed rate to a market rate when a payable balloon.
Interest rates on the hypThe investment property is generally slightly higher than the rates charged for personal residence, mainly because the person is less likely to lend a loan for his own home, then for investment real estate. Also, the required amount of reserve cash is often higher than when purchasing a personal stay. In general, the creditor will require a person seeking a mortgage for investment property to have the equivalent of six -month payments in cash reserves.
Other financial considerations are the debt ratio to the buyer's income (DTI), credit score and loan ratio to the value. The DTI is added by adding all monthly obligations and distributing the total total monthly income. If the buyer has other rental properties that have a negative cash flow, the negative amount will be considered a debt when calculating the DTI. If other properties have positive cash flow, it can be profitable for income if the buyer can justify the history of profitability. If the rent is calculated from the proposed investment nEmights for the mortgage of investment real estate, the creditor will include only 75% of the expected rent to suit a possible vacancy.
Many creditors require a 20% advance before the mortgage approval of the investment property. Others, however, may be willing to allow the buyer to obtain part of this advance through the second mortgage or stock credit line. Creditors sometimes limit the type of assets they will finance; For example, some do not have to finance the conversions of apartments and others can only finance commercial units. The person who is considering the purchase of investment property should not only investigate the real estate market, but also the possibilities of financing in its area.