Buying an investment property is different from buying a primary residence.
Whether you are purchasing your first rental property, adding another property to an existing portfolio, refinancing an investment property, or pulling equity from a rental property for another investment, choosing the right financing can have a significant effect on your long-term return.
At Capital Funding Mortgage, we help real estate investors throughout Pennsylvania and New Jersey evaluate mortgage options for investment properties.
I’m John Madden, owner of Capital Funding Mortgage. I have been helping borrowers with mortgage financing for more than 25 years. As a mortgage broker, we work with multiple wholesale lenders, giving us the ability to compare programs rather than relying on the offerings of a single bank.
An investment property mortgage is financing used to purchase or refinance real estate that you do not intend to occupy as your primary residence or second home.
Investment properties may include:
Because investment properties are considered higher risk than owner-occupied homes, qualification requirements and interest rates are generally different from those for a primary residence.
There is no single mortgage program that is best for every investor.
Depending upon the property, your financial qualifications, and your investment strategy, we can evaluate several financing approaches.
Conventional financing may be appropriate for investors who qualify based upon their personal income, assets, credit, and overall debt obligations.
These loans may be used for qualifying one- to four-unit investment properties.
Conventional investment property mortgages typically require a larger down payment than primary residence financing, and pricing can vary depending upon factors including credit score, loan-to-value ratio, property type, and number of financed properties.
Some investors may benefit from a Debt Service Coverage Ratio, or DSCR, loan.
Rather than relying primarily on the borrower's personal income, a DSCR loan generally focuses more heavily on the property's rental income compared with its proposed mortgage obligation.
This can make DSCR financing particularly useful for certain:
DSCR loan guidelines vary considerably between lenders, which makes comparing programs especially important.
Rental income may help a borrower qualify for investment property financing.
How much rental income a lender will consider depends upon the loan program, whether the property is currently rented, the property's lease history, appraisal information, and other underwriting requirements.
For a property being purchased, the lender may be able to consider market rent shown on the appraisal when calculating qualifying income.
For an existing rental property, current leases and tax return history may also be considered.
We can review the property and proposed financing before you make an offer so you have a better understanding of how the rental income may affect qualification.
Investment properties generally require more money down than owner-occupied properties.
The amount required can depend upon:
A larger down payment may also result in more favorable mortgage pricing.
Rather than automatically choosing the minimum down payment, we can compare several scenarios to help you determine the balance between preserving cash and reducing your monthly mortgage expense.
Multi-unit properties can be attractive to investors because several rental units may generate income from a single property.
Financing a duplex, triplex, or four-unit investment property, however, can differ from financing a single-family rental property.
The lender may evaluate:
If you are considering a multi-unit property, we can review the financing structure before you submit an offer.
Investment property loans are not limited to purchases.
You may also be able to refinance an existing rental property to:
Whether refinancing makes sense depends upon your existing loan, current property value, interest rate, available equity, and investment objectives.
Real estate investors sometimes use accumulated equity in one property to help finance another investment.
A cash-out refinance may allow an investor to access a portion of the equity in an existing rental property.
The proceeds might be used for:
The appropriate strategy depends upon the cost of accessing that equity and the expected return on how the money will be used.
We can compare the numbers before you make that decision.
You do not necessarily need to own multiple properties to qualify for an investment property mortgage.
We frequently speak with borrowers who are considering purchasing their first rental property.
Before you make an offer, it is important to understand not only whether you can qualify for the mortgage, but also the complete cost of owning the property.
That can include:
A property with positive rent on paper does not necessarily produce positive cash flow once all expenses are included.
Before purchasing a rental property, investors should look beyond the expected monthly rent.
For example, if a property rents for $3,000 per month, that does not mean the owner is earning $3,000.
The more meaningful calculation is the amount remaining after mortgage payments and other property expenses.
Important numbers may include:
More experienced investors may also evaluate capitalization rate, cash-on-cash return, appreciation potential, and projected long-term return.
The mortgage is only one part of that calculation, but the financing terms can have a major impact on the result.
Investment property financing can vary considerably from lender to lender.
One lender may be stronger for conventional rental financing, while another may offer more attractive options for DSCR loans, multi-property investors, cash-out refinances, or borrowers with unusual income documentation.
Because Capital Funding Mortgage works with multiple wholesale lenders, we can compare available financing options rather than requiring every investor to fit into one bank's mortgage program.
That flexibility can become increasingly valuable as your real estate portfolio grows.
Capital Funding Mortgage assists borrowers purchasing and refinancing investment properties throughout the areas we serve in Pennsylvania and New Jersey.
Whether you are considering a rental property in Bucks County, the Philadelphia area, Pittsburgh, New Jersey, or another market we serve, we can help you evaluate the financing before you commit to the purchase.
If you are considering an investment property, it can be helpful to discuss financing before you begin negotiating the purchase.
We can review:
That allows you to approach the investment with a clearer understanding of the financing and the amount of capital required.
Whether you are purchasing your first rental property or already own multiple investment properties, we would be happy to discuss your financing options.
Contact John Madden at Capital Funding Mortgage to discuss investment property loans in Pennsylvania and New Jersey.
Our goal is to help you compare the available mortgage options and choose financing that fits both the property and your overall investment strategy.
Capital Funding Mortgage
Mortgage experience and personalized guidance for more than 25 years.
