The Good, The Bad and The Ugly of Mortgages for Rental Properties

If you are looking into a mortgage for a rental property, you likely already have one on your year-round home. This rental property might serve to bring you more income. During the summer months, you might retreat there with the family and rent it out for the other seasons. Whatever your motivation is, you should know some important information about mortgages for rental properties.

 

Getting Approved

Before you can take another step in this process, you obviously have to get approved for the rental property. This might be a little bit more difficult than you think, but it can be done. Remember, once you are approved, you are going to have two mortgages in your name. Essentially, you must be able to afford both of them, a mortgage calculator is really useful for finding out what you can afford. Showing that you have a large deposit to make on this rental property can be extremely helpful for the situation.

 

Counting The Rental Income

Some people assume that they will be able to count all of their rental income while they are going through the approval process. This is generally not true. Usually, you are able to count only a certain amount of the rental income toward your income. Furthermore, you need to actually know that you are going to have renters. Even if the bank does approve you for the loan, you have to consider whether or not you can afford it if you go through a time when no one is renting the property.

 

The Length of Time

When you purchased your first home, you may have been in your late 20s or early 30s. At that time, you didn’t mind having a mortgage that would last for another 30 years. However, now, things have changed. You may be getting close to the end of your first mortgage. You should really think about how long you want to be paying this mortgage for. Take your retirement into consideration as well when making this decision. A rental property can be a wonderful place to retire to, but you want to be sure you are able to pay for it then.

 

Other Elements to Consider

If you are really thinking about taking out a mortgage for a rental property, you should definitely speak with someone who has experience in that area. Failure to do so could mean you don’t know all of the ins and outs. For example, let’s say that the house is in need of major repairs. No one is going to want to rent out a property like that, so you need to be sure that everything is taken care of. This might require you to take out a loan to get the improvements finished, so you have to be sure you can get qualified for that loan amount as well.

 

Plenty of benefits exist to taking out another mortgage so that you can have a rental property. You’ll have somewhere to go and an opportunity to make extra income. However, you need to consider the full picture before taking this major step.

Beginners Guide to Home Loans

Now that you have decided to purchase your first home, you will need to seek a home loan. This process can seem intimidating, but keeping a few things in mind while you are searching for a loan will make this task easier. The loan that you will need is a secured loan. This means that your loan will be secured by your new property, and it offers you a number of advantages.

The Advantages of a Secured Loan

With a secured loan, your lender may charge a lower interest rate, and this will make your loan less expensive over the long run. With a lower interest rate, you have lower monthly payments. However, you will need to meet the requirements to qualify for a low interest rate, and this may mean that you will need to have a high credit score.

The good news is that you have several options. One lender may require that you have a credit score in the excellent range to qualify for the best interest rates, but another lender may require that your scores are in the good range. This makes it very advantageous for you to seek a loan from more than one lender before choosing to apply with one.

Lowering Your Interest Rate by Paying Points

The interest rate must not be your only consideration because there are other factors that influence how much you will pay for a loan. You may wish to pay more money upfront so that you can qualify for an even lower interest rate. If you decide to pay what are called “points,” you will be able to lower your interest rate by a particular percentage with each point.

Determining if the Fees Are Reasonable

Another consideration is the fees that each particular lender charges. Some lenders charge several fees, but others will have a more reasonable number of these charges. You may find that some lenders will place several fees under the umbrella of “origination fees,” and this can add up to a large sum of money. You will want to examine each one of these fees in order to determine if they are really necessary. If they seem to be excessive, you can move on to the next lender.

If it seems as if seeking a home loan will be a daunting task, you can allow a broker to help narrow down your choices for you. A broker will inquire with several different lenders to find the best deals for you and your situation.