What it Takes to Qualify for an Investment Property Loan

<span title="W" class="cenote-drop-cap">W</span>hat it Takes to Qualify for an Investment Property Loan

But cashing out a large portion of your 401(k) for a real estate investment opportunity is a risk. You could lose the money you invested if things go wrong. You may also be subject to taxes and an early withdrawal penalty if you can’t repay your 401(k) loan.

Subject to Loans: When you take on a “subject to” loan, it means you’re taking over mortgage payments on the seller’s existing loan. The property you’re buying is subject to the loan that’s already in place. But you’re not assuming the loan itself.

There may be a difference between the total purchase price the seller is asking and the loan amount. In this case, you’ll need to pay the seller the difference in cash, take out additional financing, or negotiate a seller financing agreement.

In some ways, a “subject to” loan represents less risk to you. If the property goes into foreclosure, for example, your personal credit could escape undamaged. On the other hand, if the bank learns that you made an arrangement without its permission, it might call the loan due. At that point, you’d either need to find alternate financing or risk losing any funds you invested in the property.

If you’re considering an investment property loan, see what the lender you plan to work with requires in terms of eligibility.

Likely, both your personal and business credit scores will be considered to determine your creditworthiness, as well as your debt-to-income ratio. How long you’ve been in business may also matter to mortgage lenders.

How to Apply for an Investment Property Loan

It may take time to fill out your application, so gather any required information and paperwork ahead of time. You may need to provide tax returns and financial statements as well as information about your business.

Once you’re approved, you’ll be given a loan agreement that lists loan terms, including your mortgage rate. If you approve, sign the documents and the funds should be deposited into your bank account.

What to Consider Before Buying an Investment Property

All loan offers are not created equal, so be sure to shop around, since you might find a better rate and terms elsewhere.

Also, be aware of all fees that go into your investment property loan, as you may have origination and/or administrative fees.

Bottom Line

It’s not impossible to get an investment property loan with just 10% down. It is, however, complicated. You may need to accept extra risk or inconvenience if you want to avoid the traditional 20% (or higher) down payment generally required for non-owner occupied investment loans.

Of course, if the options above sound too inconvenient or too risky, that’s okay. You’re may be better off searching for a rental property loan through a more traditional route. It may take more time to save a large down payment, but doing so could help you secure financing that makes you more comfortable.

Don’t waste hours of work finding and applying for loans you have no chance of getting – get matched based on your business & credit profile today.

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Susan Guillory is a Senior Content Writer for Nav. She’s written books on business and travel, and blogs about small business on sites including Forbes and AllBusiness.

You’ll need to supply acceptable documentation for rental income to count on your loan application. Lenders ily Comparable Rent Schedule from the property appraiser as proof of the income source.

BRRRR Method : BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. The term describes a strategy house flippers often use to grow their real estate investment portfolios.

401(k): A 401(k) can also be a tax-friendly way to save for retirement. Often, payday loan companies in Gadsden Tennessee you can’t invest in real estate directly from your 401(k) account. You can, however, roll over your 401(k)-tax-free-into a self-directed IRA account. After the rollover, you can use the funds to invest in real estate, including commercial real estate.

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