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- What are investment property mortgage rates?
- Investment property loan rates vs. conventional loan rates
- Pros and cons of investment property loans
- How to get a lower investment property loan rate
- What is the minimum down payment for an investment property loan?
- Which types of loans can be used to buy an investment property?
- Can I use my home’s equity to buy an investment property?
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Buying an investment property — also called an income property or rental property — is one of many strategies that can generate income and long-term wealth. As with any investment, there are risks to buying and owning this type of property, and the requirements to finance one are somewhat different compared to that of a primary residence.
Investment property mortgage rates are the interest rates lenders charge for an investment property loan. The rate you’ll get is determined by your credit and financial profile, including the size of your down payment. In general, the higher your credit score and the more down payment you can make, the better your rate.
Investment property loan rates are almost always higher than conventional loan rates, including second home loan rates, due to the steeper risk an investment property poses compared to a primary residence. If you plan to rely on the rental income from a tenant to contribute to (or cover) the mortgage payments for the investment property, there’s a greater possibility you could default on the loan if your tenant fails to pay rent.
- You can borrow more compared to a conventional loan
- You don’t have to live in the property
- You can deduct interest as a rental expense, and also deduct for depreciation
- You’ll have a higher interest rate compared to a conventional loan
- You’ll need to meet stricter underwriting requirements
There are a few ways to ensure you get the best possible mortgage rate on an investment property loan:
- Improve your credit score (or maintain an already-strong score)
- Make a higher down payment
- Get quotes from several mortgage lenders, including community banks or credit unions
- Work with a mortgage broker
Many mortgage lenders require a down payment of at least 15 percent or 20 percent for an investment property loan, but some look for 25 percent, at minimum.
You can finance an investment property with a variety of loans, except for government-insured ones. The most common financing methods include:
- Investment property loan
- Cash-out refinance
- Home equity line of credit (HELOC)
- Home equity loan
- Bridge loan
- Hard money loan
You can use the equity in your primary residence to purchase an investment property by way of a HELOC or home equity loan. You can use either of these types of loans to make the down payment on the property. For this to work successfully, though, you’ll need to ensure the income from your tenant more than covers the payments and other rental expenses. You can use Bankrate’s home equity calculators to help you consider your options.
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