Having a second property for investment purposes can have many benefits. Short term, investment properties can provide a good source of regular income, as they can be let to tenants for rent. Over time, this rent can be used to pay off the mortgage on the property, so that eventually it is owned outright, and there may even be some surplus that the landlord can use to boost his own income. Long term, the value of the property is likely to increase, so its owner will make money on the property. They can then sell it should they need the money in the future.
Financing an investment property
Financing an investment property with cash can be ideal, as it means that all the rent earned on the property can be used as income, however in most cases it is not realistic to finance the purchase of a property solely with cash.
Mortgages can help to finance the purchase of real estate USA, which would not otherwise be possible. Most people do not have a pot of cash large enough to purchase a whole property outright, particularly if it is their first property, and getting a mortgage allows them to start making money on the property while paying off the balance due to the lender gradually, with their payment every month. Before looking for a suitable property, investors should make sure that they are pre-approved for the mortgage by a lender, in writing. This can help them to secure the property more easily. Once the property has been secured, the investor can apply formally to the mortgage company.
Although house prices are low at the moment, which helps to make buying properties more accessible in some ways, it has also become more difficult to get a mortgage. There are some steps that potential buyers can take to improve their chances of securing the mortgage they need to buy an investment property.
Having a larger down payment can help to make buying an investment property easier. Most lenders offering investment mortgages will require a down payment of at least 20 or 25 percent. Having a down payment that is even larger than this can further help to increase the chances of obtaining a mortgage, and reduce the interest rate that is chargeable.
Similarly, many lenders require that borrowers have at least six months worth of reserves in their bank account to cover all their expenses, in case they are unable to let the property straight away, or have a period during which the property is empty. Saving these reserves before applying for a mortgage can be really helpful.
Credit ratings are hugely important when obtaining a mortgage, so investors should check their personal credit rating before they apply for a mortgage, and try to improve it if required. A borrower with a good credit rating is much more likely to be offered a mortgage, on better terms, than a borrower with a bad credit rating.