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Compare Types of Real Estate Investor Mortgage Loans
Author David Schneider | Nov 26,2007
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Every year millions of homes are purchased as investment properties. Especially with the demand in the recent years for mortgages on investment properties, lenders have relaxed credit and income guidelines required to qualify for a mortgage on an investment property. It has created a win-win situation, where borrowers can qualify for a mortgage and lenders have increased business by writing more of these types of loans.
Types of Lenders for Real Estate Investors
There are two types of lenders for investment properties -- conforming and non-conforming. The non-conforming lenders are oftentimes referred to as sub-prime lenders or hard money lenders. Whether a conforming or a non-conforming lender, these types of mortgages are for residential properties of one to four units. A property with five or more units or that is commercially zoned would not fall under these categories and would require a commercial mortgage loan.
Types of Loans for Real Estate Investors
Residential investment properties typically have the same types of mortgages available as those that are for a primary or secondary residence. The difference is in the interest rate and the loan-to-value and the loan-to-value ratios (the percentage of the purchase price that the lender give as a mortgage) is lower. Interest rates for investment properties are higher than those for primary residence or a second home. So, investment properties can be bought with fixed interest rate mortgages, adjustable rate mortgages and fixed-to-adjustable rate mortgages.
Fixed Rate Investor Loans
Fifteen or 30-year fixed-rate mortgages are available for investment properties. The interest rates for these types of loans are much higher than regular residential loans. While the options for financing 20 or 30 years were more limited, today there are a few other types of mortgage options available for investment properties.
Adjustable Rate Investor Loans
Another option available to real estate investors is an adjustable rate mortgage (ARM). Typically, an adjustable rate mortgage has an interest rate that is lower than a fixed rate mortgage. Depending on how often the interest rate adjusts and what the interest rate outlook is, ARMs can cost a borrower a lot less money in the long run.
A scenario where ARMs are a better option is if the borrower expects interest rates to go down during the time that they hold the mortgage. For example, if interest rates are expected to drop in the next year or so, then you may want to consider an ARM. It is somewhat of a gamble because interest rates can go up and interest rates can go down, but if you are emotionally and financially able to handle the possible fluctuations, then it can really save you a lot of money in the end to have an adjustable rate mortgage.
Fixed-to-Adjustable Rate Investor Loans
Fixed-to-adjustable rate loans work just as it sounds. These types of loans are fixed for a certain period of time (one month, six months, one year or three years) and then it adjusts periodically after the fixed rate period.
There are just as many options available for real estate investment loans as there are for primary and secondary residences. The difference between these types of loans is the interest rate charged and the amount of a mortgage that can obtained on an investment property. These factors need to be taken into consideration before deciding on which type of real estate investor loan is best for you and for the property that you are purchasing.
Every year millions of homes are purchased as investment properties. Especially with the demand in the recent years for mortgages on investment properties, lenders have relaxed credit and income guidelines required to qualify for a mortgage on an investment property. It has created a win-win situation, where borrowers can qualify for a mortgage and lenders have increased business by writing more of these types of loans.
Types of Lenders for Real Estate Investors
There are two types of lenders for investment properties -- conforming and non-conforming. The non-conforming lenders are oftentimes referred to as sub-prime lenders or hard money lenders. Whether a conforming or a non-conforming lender, these types of mortgages are for residential properties of one to four units. A property with five or more units or that is commercially zoned would not fall under these categories and would require a commercial mortgage loan.
Types of Loans for Real Estate Investors
Residential investment properties typically have the same types of mortgages available as those that are for a primary or secondary residence. The difference is in the interest rate and the loan-to-value and the loan-to-value ratios (the percentage of the purchase price that the lender give as a mortgage) is lower. Interest rates for investment properties are higher than those for primary residence or a second home. So, investment properties can be bought with fixed interest rate mortgages, adjustable rate mortgages and fixed-to-adjustable rate mortgages.
Fixed Rate Investor Loans
Fifteen or 30-year fixed-rate mortgages are available for investment properties. The interest rates for these types of loans are much higher than regular residential loans. While the options for financing 20 or 30 years were more limited, today there are a few other types of mortgage options available for investment properties.
Adjustable Rate Investor Loans
Another option available to real estate investors is an adjustable rate mortgage (ARM). Typically, an adjustable rate mortgage has an interest rate that is lower than a fixed rate mortgage. Depending on how often the interest rate adjusts and what the interest rate outlook is, ARMs can cost a borrower a lot less money in the long run.
A scenario where ARMs are a better option is if the borrower expects interest rates to go down during the time that they hold the mortgage. For example, if interest rates are expected to drop in the next year or so, then you may want to consider an ARM. It is somewhat of a gamble because interest rates can go up and interest rates can go down, but if you are emotionally and financially able to handle the possible fluctuations, then it can really save you a lot of money in the end to have an adjustable rate mortgage.
Fixed-to-Adjustable Rate Investor Loans
Fixed-to-adjustable rate loans work just as it sounds. These types of loans are fixed for a certain period of time (one month, six months, one year or three years) and then it adjusts periodically after the fixed rate period.
There are just as many options available for real estate investment loans as there are for primary and secondary residences. The difference between these types of loans is the interest rate charged and the amount of a mortgage that can obtained on an investment property. These factors need to be taken into consideration before deciding on which type of real estate investor loan is best for you and for the property that you are purchasing. |
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