13 Jul How To Finance A Rental Property
Should you Buy or Finance a Rental Property?
There are essentially three rental property loan alternatives for serious investors wishing to grow a portfolio of rental properties: agency loans (Fannie/Freddie), local banks, or an alternative lender such as Visio Lending.
Let’s have a look at all three possibilities:
Investment Property Loans Available for Rental Properties
Alternative lenders, often known as Non-QM lenders, provide rental lending packages specifically geared to assist SFR investors in growing their rental portfolios. Also, offer a lot more freedom and tempting terms, such as 30-year maturities, because they are not bound by the standards set by bank regulators or GSEs (government-sponsored entities).
Furthermore, most alternative lenders base their loans on the cash flow of a property rather than personal income. That is, they have minimal documentation requirements and do not examine your employment history or tax records. Alternative lending has several risks, although most seasoned investors are fine with them:
- Higher interest rates and costs – seasoned investors, particularly those in growth mode, are willing to pay higher interest rates and fees in exchange for greater flexibility in achieving their wealth development objectives.
- Prepayment penalties are not permissible for owner-occupied mortgages but permitted for rental loans. Again, experienced investors are willing to tolerate one to five-year prepayment penalties if it means qualifying for a loan that allows them to meet their investing objectives. Visio provides a number of prepayment penalty alternatives, allowing investors to adapt their loan to their own needs
Also, Know Investment Property Loan Qualifications when you want to invest in Real Estate or Finance a Rental Property.
Agency Loans (Fannie & Freddie)
Agency loans are the cheapest sort of loan, but the most difficult to secure. These financial statements are often underestimated and underwritten based on a comprehensive evaluation of an investor’s cash flow. These loans have several disadvantages for investors, including:
- Significant documents
- Underwriting procedure is lengthy and uncertain, with significant reserve requirements that increase with the quantity of loans outstanding (Basically, the more mortgaged rental properties you own, the more cash reserves you need)
- Down payment obligations that rise in proportion to the amount of loans outstanding (the more mortgaged rental properties you own, the more money you must put down for each new property)
- Cash-out refinance restrictions
Local or regional banks have helped some real estate investors finance their rental properties. Banks are more liberal in underwriting if they allow to charge higher rates and fees, so they can keep the loans they approve rather than sell them in secondary markets. Some disadvantages of working with a bank include:
- Exposure constraints often require an investor to secure financing from many local banks in order to fund a substantial portfolio.
- Uncertainty stems from the fact that local banks frequently shift course in response to their most recent regulatory evaluation. This means that they may be in the business of financing rental homes one month but not the next
- Local banks are not operationally set up to originate mortgages in large volumes and work slowly.
There are a few ways to finance a rental property; Contact Kenady Fundings for more info..!!