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Mortgage Investment Property - A Guide to Mortgage Investment Properties

mortgage programs for investment properties

Getting a mortgage for an investment property is slightly different from getting a mortgage for a home that you plan to live in. The process for this type of mortgage loan is different as far as the application process goes.

When you are applying for an investment property mortgage, the bank will probably ask for a high priced down payment. The down payment should not be lower than twenty percent of what the investment property is worth. Even though twenty percent is the minimum, it is advised that you pay more than just the minimum. An investment property is not like a home to live in. Investment properties normally pose as a higher risk to the bank.

You should also bring proof of your income. You need to prove to the bank that you have the ability to pay off the loan even if your investment property does not give you any income after you purchase the property. For example if you plan to rent out the property that you purchase you cannot count the rent that you could possibly make because it has not become a part of your current income yet. The rental will not count until you have owned the property for at least a year. After the year, you will need to prove that you are actually making money with the rental property. The bank will make sure that you do not go over a percentage of your income with debts.

After you have proof of income, you will need to apply for the loan at the loan department. It is important that you let the department know that you are interested in investment property. You need to do this so that the bank can use the right application papers. If you are not clear in your intentions for investment property then the bank will use the wrong application and you may have to start all over again.

Next, you will need to get an inspection and an appraisal for the investment property that you are interested in. The bank needs to be sure that you will not be getting too much money from them. Remember that banks are very meticulous about the appraisal of investment properties. You should make sure that the appraisal happens after you have passed the prequalification process.

Mortgage Programs for Investment Properties

An Option ARM mortgage is one of the most popular mortgage programs for investment properties. This is because it is structured in an extremely flexible manner. The interest rates on Option ARM loans are tied to an index. An example of an index could be the IBOR or the prime rate. However, the index will probably change on a regular basis. In addition, the Option ARM mortgage loan offers different payment options for customers. You could pay off this type of loan in fifteen years or thirty years. You could also take advantage of an interest only payment option or a negative amortization payment option. Negative amortization is the lowest payment option. For negative amortization, the principle balance will increase instead of decrease.

A balloon mortgage is a mortgage plan that is not as risky as the Option ARM mortgage plan. This type of plan offers payments to customers that are lower than the regular principal and interest loan. As far as a balloon mortgage goes, you will only make payments on a small percentage of the complete loan amount. The rest of the loan will be due in five years, ten years, or fifteen years. If you have not sold or refinanced your loan, you will have to pay a very large mortgage payment.

Interest only loans are by far the safest loans for investors. Your monthly mortgage will usually consist of the interest that is due for each month. You can pay only the interest for any amount of time that is between one and ten years. After your set amount of time has expired your interest only loan will become a principal and interest loan. Investors usually refinance or sell the property in question before they even need to make the full payments. Interest only loans allow the investor to avoid making expensive payments.

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