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Rental Loan: 5 Things to Know About Getting a Rental Property Loan

Are you thinking about buying an investment property? Wondering what you should know about getting a rental property loan?

If you’re thinking about investing in a rental property, then you may need to get a rental property loan. However, a rental property loan isn’t the same as a traditional mortgage, and there are some differences that you should keep in mind.

Here are the 5 top things you should know about getting a rental property loan.

1. You’ll Need a Down Payment

One of the top things that you need to know about getting a rental property loan is that you’ll typically need to put down a sizable down payment of at least 20-25%. 

While this amount can vary quite a bit based on the lender, this percentage is pretty typical when getting a rental property loan. The down payment amount is very unlikely to be as low as 5% or 10% as with a normal home mortgage, so make sure you have enough money ready when you apply for a loan.

2. You’ll Need Cash Reserves

In addition to putting down a sizable down payment, you’ll also typically need to have cash reserves available when getting a rental loan as well.

Many lenders will ask to see enough money for about 6 months of mortgage payments in your bank account. You’ll need to have enough to pay both for your current traditional mortgage and the rental property loan payment as well.

3. Your Credit Score Matters

Like with other types of loans and mortgages, it will also be important that your credit score is up to snuff when getting a rental loan as well.

You’ll need to have a good credit score and a credit history that doesn’t raise any red flags. Expect that you’ll need a credit score of 670 or more in order to get a rental property investment loan.

4. Rates Are Higher

Another important thing to keep in mind when seeking a rental loan is that your interest rate will likely be fairly high compared to a traditional mortgage. 

You’ll likely need to pay at least one percent more than with a primary mortgage, so you’ll end up paying a good bit more when all is said and done. Be sure to remember this when planning your purchase.

If you’re trying to find competitive rates, be sure to consider all of your lending options. You may want to check out lendsimpli.com if you’re looking for a rental loan.

5. You Should Have a Good Debt-to-Income Ratio

One more thing to keep in mind when getting an investment property loan is that you’ll also need to have a reasonable debt-to-income ratio. Your DTI should generally be below 45%, but the lower the better. 

This can be particularly tricky to handle if you have a traditional mortgage as well. However, remember that you can usually add part of the projected income of your investment property when calculating your debt-to-income ratio.

Knowing What to Expect From a Rental Loan

If you’re thinking about getting a rental property loan, you need to be prepared for what to expect. Be sure that you consider the information above when looking for a lender.

In search of more real estate investment tips? Dig deeper into our blog now to find more useful tips and strategies.

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