Financing Rental Properties
Are you thinking about becoming a landlord? The number one question for prospective landlords is how to finance such a purchase. Typically, non-owner occupied one through four unit properties are considered ‘conventional’ loans by most Lenders, while five plus units are considered ‘commercial’. Conventional one to four unit properties are often much easier to finance. However, due to the recent financial and credit ‘crunch’, one and two unit investment properties now require a minimum 20% down payment by most lenders. Three- four unit properties typically require a 25% down payment. The Lender will determine the risk involved in acquiring rental property by looking at the buyer’s personal finances and the projected rental income. However, if you don’t have landlord experience, many lenders will require you to qualify without using rental income. Finally, lenders will want to make sure that the borrower has sufficient reserves to handle contingencies, such as repairs, maintenance, and taxes and insurance.