Setabay Private Hard Money Lender: Things to Consider Before Taking Out a Rental Property Loan

Tuesday, January 15, 2019

Things to Consider Before Taking Out a Rental Property Loan

Purchasing n Arizona rental property is a smart way to add passive income to your portfolio. But, how do you finance it?

If you are a home owner you may believe that purchasing a rental home will be as simple as getting a mortgage for your home. Unfortunately, it’s not always that easy. Walking away from your home, in times of a financial hardship, would be difficult for most. However, lenders are aware that in those same financial troubles, walking away from an Arizona investment property would be much easier. For this reason, it is more difficult to secure a loan on an Arizona rental property.

WHAT YOU NEED TO KNOW ABOUT FINANCING A ARIZONA RENTAL PROPERTY

Borrowers are able to get FHA loans with credit as low as 500 when buying for their principal residence. However, when purchasing a rental property in Arizona be prepared to have a minimum of 620; and to get lower interest rates a borrower needs to be closer to 660. You will also face higher interest rates on a rental property; usually, rental property in Arizona loans will come in at about 1 percent to 1.5 higher than an owner-occupied property.

A large down payment will usually be necessary on a rental property in Arizona. Most lenders require at least 20% down. All conventional loans use the Freddie Mac or Fannie Mae seller guidelines. These seller guidelines are what establish underwriting guidelines; however, loan services will usually add on their own overlays.

Higher cash reserves are liquid assets; they can be checking and savings accounts, retirement account assets and investments in mutual funds to name a few. Cash reserves are assets that can become available for your mortgage in cases of financial hardship. Lenders will want to see a potential buyer have higher cash reserves than that of a principal residence.

How to determine which type of lender is best for you will depend on many factors. Below are options.

1. Community Banks/ Credit Unions: A smaller bank will typically be more willing to work with you than a larger broker. They will keep the loan in-house versus sell it off to an investor. However, they may only approve you for the geographic area they are located and this can limit you.

2. Conventional Bank Loan: These are the loans that must conform to strict guidelines established by Freddie Mac and Fannie Mae. A higher down payment will be required. However, equity will build faster. That large down payment may make it difficult for a first time investor. Conventional bank loans may be a better option for experienced investors who have the money to put down.

3. Hard Money Loans: This is a loan that is issued by a private investor or investment company. Hard money lenders are less concerned in a borrowers credit and more interested in their assets. This type of loan will always be backed by property. Approval times are much faster and some lenders will lend 100 percent of the purchase price.

Rental properties in Arizona have always been looked at as a simple way to achieve wealth. It is important that the borrower considers all the risks of being a landlord. Take your time and find the right lender that can make this dream a reality.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.