With all of the types of loans available today, there are many choices when it comes to financing your investment property.Investment loans up to 100% are available for single family residences, duplex, tri-plexes, and four-plexes. While these loans have higher rates, they allow the investor little to no cash out of pocket.
Another factor in weighing loan options for investment properties should be if the property is generating a positive or negative cash-flow. If the investment property will have rental income, will the loan payment be affordable in times of no tenancy.
Some investors that plan to keep a property for a long time will opt for a fixed rate mortgage with principle and interest payments. That way, in 30 or 40 years down the line once the mortgage is paid off they will own the property free and clear and have pure positive income. As an investor, you must weigh out the options and what your ultimate goals are when purchasing a property.
A pay option ARM may be a good choice for a savvy investor who wants a flexible, minimal monthly payment. Option ARMS allow for deferred interest, meaning you can make a payment so low it doesn't cover the interest due. The unpaid interest is added to the principle amount, meaning the loan balance goes up. Many investors have a specific time period in mind and can account for the deferred interest at the beginning of the project.
Interest only loans have been popular for investment properties. They allow the investor to optimize the cash flow for when a property maybe performing less then average due to under market rents.
Typically, cash flow is at a premium for investors. They want to be able to put their money where the yield is highest. The less that they have to pay to a mortgage lender each month, the more they have at their disposal to put toward some other interest bearing account.
Another thing to remember when considering investment loan options is that many lenders consider the amount of reserves available to the investor after closing the loan. An investor with more reserves will receive better financing options that an investor that doesn't have six months of PITI (principle, interest, taxes, insurance) in the bank or other liquid assets.
Keep in mind also what your plans are for the property. Are you planning on keeping it for a rental or are you planning on flipping it for a quick profit? This is information that a qualified mortgage professional should know to best advise you to which product would be most beneficial to your financial goals.
