The housing market has recovered considerably since the crash. Homes are now back in high demand, and – thanks to stricter lending practices – the likelihood of another crash in the future has been drastically reduced.
For investors, this means that now is a great time to consider purchasing a rental property. Home costs are higher, which means that fewer buyers are able to enter the market, yet interest rates are low and homes are expected to continue to climb. For those considering a rental property, this means:
- There are more renters available.
- The home should continue to gain equity.
- The rental prices may be higher than the low interest monthly payments.
This is the perfect scenario for buying a rental property. The only problem is that the stricter lending practices means that buying a rental property is not as easy as it once was. If you hope to purchase a rental property, consider the following tips:
- Make a Larger Down Payment – Making a bigger down payment is valuable, and in some cases necessary. Most lenders will require at minimum a 20% down payment, and the higher the down payment you make, the lower your rate will be and the easier it will be to get approval.
- Shop Around More – Unlike traditional home loans for owner-occupied housing, lender interest in investing in second homes can differ greatly between lenders. Some lenders like investing in rental homes. Others do not. This can affect your rate dramatically in ways that owner-occupied homes may not experience.
- Have Excellent Credit – This is always important for any type of mortgage, but is especially important for those purchasing a rental property. Excellent credit is mandatory, as most lenders will not provide 2nd home mortgages to borrowers that cannot show excellent credit.
- Utilize Your Own Home Equity – If you have a HELOC (Home Equity Line of Credit) or a way to tap into your current home’s equity as a way to make an even larger down payment, it may be worth considering. It can be risky for those that cannot afford to pay it back, but it is a good way to make the investment you need into the property.
- Find the Right Home – Lenders may shy away from homes that simply do not look like good investments. For example, if the home is in disrepair, and you are hoping to fix up the home in order to rent it for more money and gain equity, lenders may shy away. Make sure you have found a home that also looks like a strong investment to lenders.
Every town, home, and borrower is different. The best thing you can do is work with a loan originator, and try to find solutions that make the most sense for your portfolio. Contact me to get started today!