Buying an Investment Property
Buying an investment property is rapidly becoming a preferred investing method. Real estate values usually rise as time passes and is considered a secure option. With a low risk – high return value, you and your family may be considering it as an additional source of income and a great way to build equity.
When purchasing an investment property, there are several questions you need to ask yourself. Are you purchasing a fixer-upper as an investment? The condition of the property you want to finance matters, if it is in poor condition it could be hard to arrange mortgage financing.
Are you purchasing an additional property that you intend to rent out to get immediate returns? Rental properties have different mortgage rules depending on whether it is owner-occupied or not.
Owner-Occupied vs Non-Owner Occupied Rental Properties
If you are considering purchasing a home to live in that also includes a secondary or basement suite that is available to rent, this would be considered an owner-occupied plus rental and uses standard mortgage rules. This means you are only required to have the minimum 5% down payment. Some of the projected income generated from the rental suite can be used towards qualifying for a larger mortgage amount.
Properties that are to be used strictly as rentals, non-owner occupied, will have different mortgage rules. In this case, a 20% down payment is required for the purchase; however, rental income from all units can still be used towards qualifying. If you own other properties, you may be able to access equity to assist with the larger down payment through a refinance.
How property value affects mortgage approval.
If you want to purchase a fixer-upper as an investment, you may have a more difficult time arranging mortgage financing. The property matters as it is the collateral the lender holds if you default on your mortgage. Lenders make every effort to ensure that a property they’re financing is without defect. They want to see a property that is considered “prime and marketable”. This means that if you default on your payments, they can quickly sell the home and recoup their money.
What if you’re looking to purchase a property that isn’t in the greatest condition?
This is where a purchase plus improvement mortgage is a great option! This type of mortgage allows you to purchase the property and include some of the renovation costs in the mortgage.
This is only one of many options, contact Mortgage Design Group today to guide you to find the best return on your investment!