Real estate makes a good investment and like many others, you may be considering a rental property to bring in extra income. Multifamily loans can help you secure this property and, depending on your location, make financing real estate well within your grasp. While you should consider a conventional mortgage, the Federal Housing Administration has loan options that you should also think about when pondering the best way to finance your real estate investment.
The terms of multifamily loans will usually differ depending on whether or not you’re occupying your rental property. If you plan to live in your new investment and rent out all the units later on, an FHA loan may be the best choice for you. The down payment is low, with a requirement of at least 3.5% and your closing costs can be wrapped into the loan. The amount of money you may qualify for depends on where you live. In order to secure financing, you are usually required to provide information about any open loans to your loan officer and also show income statements or tax returns, as well as prove that you have a good credit score.
If you will not be living in your investment property, your financing options are a bit different. In this case, you’re usually looking at mortgage loans only. The amount of financing you can get for your property is higher than what you would typically get for a single-family dwelling; however, because you’re planning to rent out all the units, your property is considered a higher risk. In some cases, you may want to find a lender who specializes in commercial investment properties. Because renting all the units is considered a higher risk, the loan terms differ from getting a mortgage on other properties. Your interest rate, for example, will typically be higher, and so will your down payment. You can expect to pay anywhere from 20-30% for a down payment, depending on how many units your property has.
Whether you live in your investment property or rent out all of the units, you are able to use the rental income to qualify for your loan. Usually you need to have rental agreements on hand so that your loan officer can see that units will indeed be occupied. If you haven’t found tenants yet, then it is less likely that your future rental income will be able to help secure your loan, as you cannot guarantee that all of the units will be filled.
Ultimately, the decision you make will be the one that helps you achieve your goals in real estate investing. Multifamily loans offer many options for new investors; with a bit of research, you can better understand which choice is the best one for you.