Seven Tips For Investment Property Loans
If you need a loan on an investment property, the following tips will help you get the most favorable rates and terms.
- It helps to be precise in your terminology. Investment property loans include, not only (non-owner-occupied) residential loans, but also multifamily loans and commercial loans. For which kind of income property loan are you looking?
- Even if you are renting the property out for investment purposes, a loan on a house, a condo, a duplex, a triplex, or a fourplex is still considered a residential loan. Why? Fannie Mae and Freddie Mac will buy mortgages on non-owner-occupied (rental) one-to-four family residences. That's an important term of art: one-to-four family. A single family home or a condo is a one-family residence. A triplex is a three-family residence. Got it?
- Investment property loans on residential properties are cheaper than multifamily loans or commercial loans. The reason why is because such loans are liquid. Suppose you're a bank, and you make a loan on a rental fourplex. If suddenly there is a run on the bank, you can quickly sell that loan to Fannie Mae or Freddie Mac to raise cash. In other words, loans on one-to-four family dwellings are liquid investments because you can quickly convert them to cash. Liquid investments are more desirable, so the bank will give you a better rate. Important Note: The key issue is the number of units in the property, NOT whether the property is owner-occupied. Surprising, huh?
- If you need an investment property loan on a one-to-four family dwelling - in other words, a residential loan - then you do NOT need a commercial loan. You should simply go back to the same home loan mortgage company that helped you buy your personal residence.
- But what if the investment property that you are buying has more than four units - perhaps a 5-plex or larger. These loans are called multifamily loans, and you should apply to a commercial mortgage company, like C-Loans.com. Most commercial mortgage companies make both multifamily loans and commercial loans.
- Properties like office buildings, strip centers, and industrial buildings are considered commercial properties, and to finance one of these properties, you will obviously need a commercial loan. If you are buying a strip center, for example, not to house your business, but rather just to earn rental income, then this strip center is considered to be a commercial-investment property. Obviously you would apply to a commercial mortgage company, like C-Loans.com, for a loan on a commercial-investment property.
- What if you are buying a warehouse that your company intends to use? (The term "use" is arguably better than "occupy" because you don't intend to actually live there; but a great many commercial mortgage professionals will describe commercial properties as "owner-occupied".) If you intend to move your company into the building, then you should strongly consider an SBA loan. Most commercial mortgage companies, including C-Loans.com, offer SBA loans. In fact, when you submit a commercial loan using C-Loans.com, you can submit that one mini-app to hundreds of different SBA lenders.
- One final thought. Even though you are on the web tonight looking for a commercial loan, you still have money virtually rotting in the bank, in your IRA, and in your pension plan earning a very paltry rate. Is the bond portion of your investment portfolio earning 7% to 12% interest or is it losing money every month as interest rates march upwards? You should seriously consider trust deed investing.