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How do Investment property Mortgages work?

How do Investment property Mortgages work?

Annette Bui |Updated May 29, 2020 | Mortgage Programs 101

Investment properties are a great way to leverage assets to create wealth, whether it is a property purchased with existing tenants that occupy the whole house or a multi-family unit with multiple tenants. The intention is to acquire income producing property so essentially another party is paying the mortgage for you for either a short term or possibly long-term investment. When qualifying for this type of loan, depending on whether there is an existing tenant or not. The income may be used to offset your mortgage and other expenses. Unlike primary and secondary homes, an investment property does not have restrictions such as a minimum distance from your primary residence and does not have to be near a resort. In some cases, such properties do not get mortgaged to generate rental income but rather upgraded or remodeled and later sold for a profit by real estate flipping.


Advice for acquiring an investment home:


Acquiring investment property requires due diligence to know the local market and understand how likely the value is going to appreciate or retain its value. A vital part of identifying a good investment is researching what its operating costs and projected rental income the property can generate. Some real estate professionals recommend at least 1% of the purchase price as the minimum threshold on rental income to be considered. Furthermore, to account for any additional maintenance or management costs if you rent out to tenants or cost of materials and labor to get upgraded and flipped.

It is essential to do the research and get informed so an educated decision can be made for the nominal price. Before making the decision, you may want to hire a building inspector to locate any additional issues that may arise if there are plumbing, electrical problems to avoid any mishaps as  well as continuing this on a frequent basis.

Keep in mind, investment properties require a higher down payment of a minimum 20-25% depending on your credit score in addition to extra cash reserves of up to two months expenses for each property owned. Thus, if you own just your primary and the new investment then you would need to show two months of expenses on your primary home and an additional two months for the new property.


How to get started?

To get started on your investment home search, we advise reaching out to Annette’s team to get a personalized pre-approval to help you shop with confidence. After you close, we recommendations to conduct ongoing financial assessments to ensure your finances are in order and well managed to meet your lifestyle needs. With Annette’s team, you will continue to get the support and guidance how to manage your financial journey. The value system Annette employs is to endorse a perpetual program and relationship to continue a long-term relationship. To be readily available if your financial goals change as your family grows and adjust a road map accordingly to meet your custom-tailored needs.



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