Real estate investing is a huge part of the world of real estate investing. It’s a great way to build wealth, and it allows you to use your money in a way that’s tax-free.
But what if you want to invest in real estate but don’t have a lot of money to start out with? How do you get a rental property loan?
What Is A Rental Property Loan?
A rental property loan is a loan taken out to buy a rental property. The loan is secured by the rental property, so it’s more secure than an investment property loan.
The most obvious way to get a rental property loan is to buy an existing property with the intention of renting it out. However, it’s possible to also buy a vacant lot, build a house and rent it out.
What Are the Different Types of Rental Property Real Estate Loans?
There are many different types of loan programs for real estate investors. Each has its own set of requirements and qualifications, and each has its strengths and weaknesses.
Here are some of the most common types of rental property loans:
- Cash-out refinances: If you’ve been living in your current home and want to buy a new home, you can use your cash-out refinance to pay off your current mortgage and then refinance your new home with a larger mortgage.
- Refinance: You can typically refinance your existing home to take out a larger mortgage and then use the additional equity to invest in another home.
- Debt consolidation: If you want to consolidate your existing debt into one loan, this can be an option.
- Home equity line of credit (HELOC): This loan allows you to borrow against the equity in your home and use it for other purposes.
- Home equity loan: This is similar to a HELOC, but it’s more secure against your home.
How Do You Get a Rental Property Loan?
There are several ways to get a rental property loan. The lender will look at the type of investment you’re making and the risk level. They will also look at your income and assets, which include your personal and business assets. The lender will also look at how much equity you have in your home.
The lender will want to know that you can pay back the loan as well as the interest rate on the loan, which is typically very low in comparison to other types of loans. If you don’t have any money available, you can use a secured loan or a small business loan to get a rental property loan.
Breaking Down The Typical Costs Of Rental Property Loans
There are several costs involved with each type of rental property loan. The lender will be looking at the cost of the down payment, monthly principal, interest, and annual taxes for the property. The lender will also consider the cost of insurance on the property.
Down Payment Costs
The down payment will vary based on the type of loan you’re getting, but it should be around 10% to 20% of the purchase price of the property. For example, a $100,000 house would require $10,000 to $20,000 in cash upfront.
Monthly Principal and Interest Payments
These payments will vary based on the type of loan you’re getting and how long you plan to pay it back. You’ll need to pay interest on these loans monthly or yearly. These monthly or yearly payments are typically much higher than other types of loans because they are secured against your property and not just your personal assets.
Annual Taxes and Insurance Costs
You will need to pay annual taxes and insurance on the property, which can be expensive if you’re buying an existing property. You’ll also need to add these costs to your monthly principal and interest payments. These costs can vary depending on whether you have an existing mortgage or if you’re taking out a new mortgage for the property.
- Mortgage fees: These fees vary depending on what type of mortgage you take out and how much money you put down on the mortgage. They can range from $1,500 to $3,000 per loan depending on what you get.
- Title insurance: This is required by law in most states, but it can be expensive if you don’t have any title history or previous liens or judgments on the property. It can range from $200 to $2,000 per title search depending on what state you live in.
What Is the Process Like?
There are several different ways you can go about getting a rental property loan:
- Go through a real estate agent: You can try to find someone who can help you find a real estate investor who has a rental property with an investor willing to take out a loan for you. This won’t always work, but it can provide some valuable leads for finding someone who can help you with your investment.
- Look for private lenders: You can also look for private lenders who might be able to help you get a rental property loan. These lenders usually have high standards for borrowers and require good credit scores. They may also require more documentation from borrowers than conventional lenders do.
- Get pre-approved for a loan: You can also try going online and getting pre-approved for a mortgage or a rental property loan using the information on your credit score or through an online questionnaire. There are several different websites that allow you to do this including LendingTree and Rocket Mortgage.
If you want to invest in real estate but don’t have any money, there are several different ways you can get a rental property loan including going through an agent, finding private lenders or getting pre-approved for one yourself online.