In today‚Äôs real estate market buyers have discovered that the prices are right for them to purchase rental properties. But with banks tightening their lending restrictions, many prospective buyers are unsure of how they can obtain financing. While it may have become more difficult to obtain financing, it is not impossible; as long as you have good credit and a reliable income. You will also need to understand that you will be applying for a loan on a property that you will use primarily as a rental property, so your financing will be referred to as non-owner occupant financing.
Many first time investors choose to obtain financing for a rental property as an owner occupant. This method requires that the buyer purchase a property and use it as their own personal residence, if you choose this method you will also need to live in the property for twelve months as outlined in the owner occupant loan agreement. When you qualify as an owner occupant you are able to obtain the best financing and may be able to purchase a home with only 3.5% down. After a year, you will be able to move out of the property and use it as a rental without forfeiting any of the original terms of the loan agreement. Living in the property for a year also allows you to discover any issues with the home and get them repaired before you begin renting it.
If you choose to purchase a rental property as a straight rental property you may need to put down at least 25% of the purchase price in order to get approved by a lender. That down payment combined with closing costs and any renovations costs may add up to 35% of cash up front in order to close escrow and prepare the property for tenants. This method also requires borrowers to have good credit in order to qualify for financing. This method of purchasing a rental property requires a larger down payment than if purchased the property as an owner occupant, but if you prefer not to live in the home for a year this may be the best option for you.
Before you begin viewing properties with an agent, it is important that you first speak to two or three different lenders to find out what type of loan you qualify for and how much you can be approved for. Different types of lenders offer different types of loans and you may be able to find a program that fits your needs. Loan costs and rates will vary depending on the type of lender you work with. This is a perfect time for beginning investors to purchase properties that can be used as rentals. There is an abundance of available homes and with a good credit score you should have no trouble obtaining financing.