{"id":1188,"date":"2019-10-26T00:00:00","date_gmt":"2019-10-26T00:00:00","guid":{"rendered":"https:\/\/qa.simplifimoney.com\/blog\/investment-property-loans\/"},"modified":"2024-11-18T10:22:18","modified_gmt":"2024-11-18T18:22:18","slug":"investment-property-loans","status":"publish","type":"post","link":"https:\/\/www.quicken.com\/blog\/investment-property-loans\/","title":{"rendered":"Investment Property Loans: Everything You Need to Know"},"content":{"rendered":"\n<p>Investing in real estate requires capital, whether you\u2019re buying a vacation condo to rent out, a single-family home for leasing, or a multi-story apartment building. <a href=\"https:\/\/www.quicken.com\/personal-finance\/rental-property\">Rental property<\/a> loans can provide the capital you need, but they\u2019re not exactly the same as conventional home mortgages. It\u2019s important to understand the nuances of these loans before you sign on the dotted line.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why Use an Investment Property Loan?<\/h2>\n\n\n\n<p>The first and most important reason to seek financing is because you don\u2019t have enough cash for the full purchase price; however, there can be other benefits to taking out a loan.&nbsp;<\/p>\n\n\n\n<p>Borrowing\u2014or <a href=\"https:\/\/www.investopedia.com\/articles\/mortgages-real-estate\/10\/increase-your-real-estate-net-worth.asp\">leverage, as the financial experts call it<\/a>\u2014allows you to make a bigger investment with a smaller initial outlay. That means that any returns would be magnified, whether they come from rental income or rising real estate prices. A 10% increase in your property\u2019s value becomes a 20% increase if you\u2019ve only put half down. That\u2019s the power of leverage.&nbsp;<\/p>\n\n\n\n<p>Borrowing also increases risk, though. A drop in the value of your property will hit you harder if you\u2019ve borrowed to buy it. If the economy slows down and vacancies rise, you\u2019ll still be on the hook for loan payments and interest, as well as operating expenses, even though less money is coming in.&nbsp;<\/p>\n\n\n\n<div class=\"custom-inline-promo inline-promo_ inline-promo--26 \">\n    <!-- Body Image field --><p><\/p>\n<div class=\"content-wrapper\">\n      <!-- Title field --><p><\/p>\n<div class=\"inline-promo--title\">\n          The best solution for your home &amp; business        <\/div>\n<p>            <!-- Subtitle field --><\/p>\n<div class=\"inline-promo--subtitle\">\n          Manage all your finances in one place with perfect separation        <\/div>\n<p>            <!-- Body field --><br>\n            <!-- CTA field --><\/p>\n<div class=\"field field-name-field-ip-ctas field-type-link-field field-label-hidden\">\n<div class=\"field-items\">\n<div class=\"field-item even\"><a href=\"\/compare\" class=\"cta\">Get Quicken<\/a><\/div>\n<\/div>\n<\/div><\/div>\n<p><\/p><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Real Estate Investment Loan Considerations<\/h2>\n\n\n\n<p>Real estate investment loans are inherently riskier than conventional mortgages because it\u2019s easier to walk away from an investment than your primary home. As a result, you\u2019ll face some constraints:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Interest rates are <a href=\"https:\/\/www.biggerpockets.com\/blog\/financing-investment-properties\">typically one to three percentage points<\/a> higher for rental properties than primary home mortgages.&nbsp;<\/li><li>Lenders will demand <a href=\"https:\/\/www.investopedia.com\/articles\/investing\/021016\/complete-guide-financing-investment-property.asp\">larger down payments<\/a>. <a href=\"https:\/\/www.bankrate.com\/investing\/financing-investment-property\/\">Mortgage insurance isn\u2019t available<\/a> on investment properties, so you\u2019ll probably have to put down at least 20%. Down payments of 25% to 30% aren\u2019t unusual.&nbsp;<\/li><li>You\u2019ll have to pay all closing costs upfront.&nbsp;<\/li><li>You\u2019ll need to have <a href=\"https:\/\/themortgagereports.com\/26430\/what-are-mortgage-reserves-and-how-much-do-i-need\">cash reserves<\/a> on hand, as well as a down payment. Most banks ask to see enough money to pay housing costs, like loan payments, insurance and taxes for six months.&nbsp;<\/li><li>It may take longer than a home mortgage to get approved\u2014and you\u2019ll likely need more documentation. Investment lenders typically ask to see your credit report, assets, cash reserves and income statements. In some cases, they may ask for a business plan projecting rental income and capital appreciation for your investment property.&nbsp;<\/li><li>There are limits on how many mortgages you can have at one time. Conventional lenders limit borrowers to four mortgages, though <a href=\"https:\/\/www.fanniemae.com\/content\/guide\/selling\/b2\/2\/03.html\">Fannie Mae<\/a> has a program that can finance up to 10.&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Types of Investment Property Loans<\/h2>\n\n\n\n<p>There are several different types of loans available.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Conventional mortgages<\/h3>\n\n\n\n<p>These are just like your regular home mortgage, except that they may require larger down payments, charge higher rates and ask you to demonstrate significant cash reserves, as described above.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Fix and flip loans<\/h3>\n\n\n\n<p>Sometimes called \u201chard money\u201d loans, these are short-term financings designed for people who flip houses\u2014that is, buy them cheap, fix them up and sell them for a profit within a year or two. They\u2019re short-term loans with terms of six to 36 months typically and they carry higher interest rates than conventional mortgages. You should only take out this kind of financing if you\u2019re sure you can sell the property within the term of the loan.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Home equity<\/h3>\n\n\n\n<p>Many real estate investors use equity built up in their homes to finance investment purchases, either through a home equity loan or a home equity line of credit. This type of financing is typically less expensive than other loans and may require a smaller down payment or no down payment at all. It is secured by your primary home, however, so if you default, you risk losing your house.&nbsp;<\/p>\n\n\n\n<div class=\"custom-inline-promo inline-promo_ inline-promo--25 \">\n    <!-- Body Image field --><br>\n          <figure><img decoding=\"async\" src=\"https:\/\/www.quicken.com\/blog\/wp-content\/uploads\/2022\/08\/promo-banner-image_0.png\"><\/figure><p><\/p>\n<div class=\"content-wrapper\">\n      <!-- Title field --><p><\/p>\n<div class=\"inline-promo--title\">\n          The best solution for your home &amp; business        <\/div>\n<p>            <!-- Subtitle field --><br>\n            <!-- Body field --><\/p>\n<ul>\n<li>Customize invoices &amp; store documents<\/li>\n<p>\n<\/p>\n<li>Generate Schedule C, E &amp; other tax reports<\/li>\n<p>\n<\/p>\n<li>Track leases, deposits, and more<\/li>\n<p>\n<\/p><\/ul>\n<p><!-- CTA field --><\/p>\n<div class=\"field field-name-field-ip-ctas field-type-link-field field-label-hidden\">\n<div class=\"field-items\">\n<div class=\"field-item even\"><a href=\"\/shoppingcart?addproduct=170166&amp;icid2=blog-inline-promo-home-and-business-v1\" class=\"cta\">Get Quicken<\/a><\/div>\n<\/div>\n<\/div><\/div>\n<p><\/p><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">What you\u2019ll need to apply<\/h2>\n\n\n\n<p>You need to provide <a href=\"https:\/\/www.credit.com\/loans\/mortgage-questions\/financing-your-first-investment-property\/\">documentation<\/a> to apply for an investment loan, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Your credit report<\/li><li>Bank statements<\/li><li>Investment and retirement account statements<\/li><li>Pay stubs<\/li><li>Driver\u2019s license<\/li><li>Social security card<\/li><\/ul>\n\n\n\n<p>Self-employed borrowers will also need<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Two years of tax returns<\/li><li>A business or occupational license<\/li><li>Business bank statements&nbsp;<\/li><li>Cash flow and asset statements<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Investing In Real Estate With Borrowed Money<\/h2>\n\n\n\n<p>Used prudently, loans can be an essential part of your real estate investment strategy, enabling you to purchase more property for a smaller initial investment. Like any loan, investment property mortgages involve some risk, so think carefully about how much you want to borrow and how readily you can pay it back. By borrowing moderately, you could boost your returns from both rental income and appreciation, and increase your chances of investment success.&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Investing in real estate requires capital, whether you\u2019re buying a vacation condo to rent out, a single-family home for leasing, or a multi-story apartment building.  loans can provide the capital you need, but they\u2019re not exactly the same as conventional home mortgages. It\u2019s important to understand the nuances of these loans before you sign on the dotted line.\u00a0<\/p>\n","protected":false},"author":59,"featured_media":1190,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"","_seopress_titles_title":"Investment Property Loans: What You Need to Know | Quicken","_seopress_titles_desc":"Learn how to apply for rental property loans, the types of loans available, and how financing can increase your returns.","_seopress_robots_index":"","inline_featured_image":false,"footnotes":""},"categories":[114],"tags":[],"class_list":["post-1188","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-real-estate"],"acf":[],"jetpack_featured_media_url":"https:\/\/www.quicken.com\/blog\/wp-content\/uploads\/2022\/08\/QuickenInvestmentPropertyLoans2.jpg","_links":{"self":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts\/1188","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/comments?post=1188"}],"version-history":[{"count":2,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts\/1188\/revisions"}],"predecessor-version":[{"id":4582,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts\/1188\/revisions\/4582"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/media\/1190"}],"wp:attachment":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/media?parent=1188"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/categories?post=1188"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/tags?post=1188"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}