Florida Investment Property Loans
When it comes to Florida investment property loans, there are two types of investors; those who are new to the game and those who are seasoned. In either case you’re going to be affected by a few of the same factors when it comes to getting the best investment property rates possible.
First of all, in order to put an offer to purchase an investment property you will need to qualify for a conventional loan. This generally means having a credit score of 640 or better and being able to make a reasonable down payment. This is because conventional loans with a bank have stricter underwriting guidelines. The term of your loan (20 year, 30 year, etc.) may vary, but your mortgage loan option will not. You cannot use a non-conventional loan, such as an FHA loan or a VA loan, to purchase an investment property.
Since you cannot use an FHA or VA loan to purchase an investment property, you will need to factor in your potential closing costs and a down payment as part of your overall investment budget. For primary owner-occupied homes the down payment may be as low as 3%, but most banks require a 20% down payment on investment property mortgage loans. And to get the best possible investment property rates you will want to make a down payment of at least 30% instead.
Aside from these factors, you will also need to carefully consider how you would like to profit from your investment property before you decide on the mortgage terms that will work best for you. The two common forms of investing in a property are by renting it to others and by ‘flipping’ it (selling it). Note that the interest rates on investment properties are always higher than they are for owner occupied home financing. This is because the mortgage lender is assuming more risk, as a borrower is more likely to default on an investment property than they are on a home they live in. Because the interest rates are naturally higher, you should choose a mortgage solution that gives you the best rate based on how long you expect to be holding the property.
Investment property loans when you intend on Leasing/Renting the Property
If you’re buying an investment property so that you can rent it out or lease it to other people, you will be holding the mortgage loan in your name for some time. The lower your monthly mortgage payment, the more profit you stand to make from the rent you collect every month. Bottom line, you want the lowest mortgage rate possible. This means you will want a fixed rate mortgage and will want to put down a higher down payment (if possible).
As you are holding this investment property, it is possible that you will want to continue buying investment properties and renting them out. If this is the case, make sure the mortgage lender you want to work with will finance a higher number of properties with you. There are many national lenders who will only finance up to 4 investment properties. Others mortgage companies will handle up to 10. When shopping for a mortgage lender, it’s important to choose one that will handle the amount of properties you would like to invest in.
Before you decide on buying a home in order to lease it out, make sure you’ve run the number using an investment property calculator and can afford the property. Basically, what is the minimum you can charge to rent the home and still break even? If average in that particular area is $1,000 and you think you can get $1,500, that’s great. But base your investment on the worst-case scenario: the minimum you can charge and stay afloat, not the maximum you think you can get. If you could potentially make the monthly mortgage payment, pay the taxes, and handle the associated costs of home ownership while charging only the minimum average payment for that area, then it’s probably a good property. Obviously, the larger the difference between what you can charge and what you must pay, the more you make every month while the home is rented. Nevertheless, you should always be prepared for the unexpected chance that you will be forced to ask for less than you originally anticipated.
Running the numbers also means factoring in an amount of time when the property may be empty. Banks generally factor in a vacancy rate of around 25%. Remember that even when no one is leasing the home, you will still be paying the monthly mortgage payment and associated taxes on that home. If you cannot afford to foot that bill on your own at least 25% of the time, you may want to look for a different property, or consider flipping the home instead.
Investment property loans when you intend on Flipping the Home
Flipping a home can take anywhere from 6 months to 2 years. This means you will want the mortgage option that comes with the least amount of up-front costs and the lowest investment property rates in the short term. Many mortgage lenders will advise you to opt for an adjustable rate mortgage (ARM). ARMs offer an interest rate that is almost 1% lower than fixed rate mortgages, for a set period of 3, 5, or 7 years. There’s not much reason to worry about how the rate will be affected (adjusted) later as you will be selling the home before you reach this deadline.
However, it’s actually more important that you go with the investment property loan that offers the fewest initial costs, and this may mean paying the higher interest rate on a fixed rate mortgage. The higher interest rate is usually more than offset by the fact that you can opt for no or low closing costs and other fee concessions. Remember, you’ll only be paying this interest rate for the amount of time it takes you to sell the home, which may be only a year. The money you save in initial costs can be held back for emergencies (such as having to hold the home longer than you expect) or invested into fixing the home up and making it more valuable. This equals a larger profit once you find a buyer and, again, really offsets the extra percentage you pay in interest.
In the end, weigh your options carefully, but keep in mind that the general best practice for flipping a home is to go with the mortgage option that offers the lowest initial cost to you.
Historically low mortgage rates and excess market inventory makes it a prime time to buy low and make a positive cash flow investment. We have many programs available for purchasing an investment property.
Call (407) 704-8729 to speak with a licensed mortgage professional or complete the fast quote form now.
Find more information about Investment property loans visit Freddie Mac's factsheet.
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