Loans and the interest we pay on them are one of the most important parts of our financial management. But not all loans are the same. If you ask a lender what loan you need, they will probably try to sell you the loan they want you to have.
Mortgage brokers are not bound to only offer loans from one lender – they compare loans from several lenders to ensure that you are getting the very best deal.
The right loan makes all the difference. Even a small reduction in the interest rate can add up to many thousands of dollars over the life of a loan.
Our mortgage broking service helps you choose the right loan from a wide range of lenders. This means that you can be confident that the loan we recommend is the one that you most need. And we don’t just advise on loans. We handle all of the administration related to the application and establishment of your individual lending portfolio. Our service gives you the best chance to get the loan you need at the price you want.
Buying an investment property can mean many things. Sometimes people even use this phrase to describe buying a home they live in because, after all, that property is a significant investment for them. Investment property most commonly means buying a home that you do not live in, but instead, rent out.
When you buy an investment property, you need an investment property mortgage.
The first thing to know is what other names these mortgages go by, so you know them when you hear them.
A lot of consumers and real estate agents will call this kind of loan a rental property mortgage. Lenders, on the other hand, will call this a non-owner occupied mortgage.
The reason for this is that lenders categorize investments by occupancy, and there are three kinds of home loans.
Owner-occupied mortgages are loans for people buying a home they intend to live in as their primary residence.
These loans require you to move into the house within 60 days of closing the loan, and you must live there for at least one year after that, you are free to rent out the home, and your loan terms can not change.
Second-home mortgages are loans strictly for people buying a home they intend to use as a second home for family and friends, and lenders prohibit rental of the house. If you rent your home with a second-home mortgage on it, that mortgage can be called due and payable all in one lump sum.
Non-owner occupied mortgages are loans for people who want to rent out the home. If at any time you want to convert this rental home to a primary residence, you’re free to do so, and it won’t change the terms of the loan.
If the non-owner occupied mortgages above sound flexible-in that you can convert the home from a rental to a primary residence if you wish, that’s because the rates for these loans are higher, and so are the down payments. The risk to the lender goes down if you were to convert a rental property to a primary residence.
If you have a rental property, this will show up in a section called Schedule E is positive, that number counts as income and the tax on it.
If the net amount is negative, that number counts as a loss and reduces your taxable income. But there’s a catch here because higher earners do not always get the benefit of reduced taxable income each year. If you make to much, a rental property loss on schedule E would instead accrue yearly and count as an offset to capital gains when you sell the rental property. Talk to your tax advisor for advice on which scenario would fit your profile. People often assume they can rent their second home when they are not using it.
Which is false, and can land you in trouble. It’s critical to understand why you can’t’ ever rent out a property you financed with a second-home mortgage. The reason this is not allowed is because of how the IRS treats taxes for second homes. If you own a second home, the mortgage interest and property taxes on that second home are fully deductible (on Schedule A), just like mortgage interest and property taxes for a primary residence.
Lenders do not allow you to rent out a property with a second-home mortgage on it, because you’d be double-dipping by getting rental income and also getting the same tax benefit as you do with a primary residence.
If you want to have a second home that you can also rent out, then you need to finance it with a rental property mortgage to comply with lender and IRS rules.
It means you will need a larger down payment and will pay a slightly higher rate. But you will benefit from the income- and you can also use the revenue to qualify for the loan. Demand for rental properties remains high, so buying a rental investment property could be an excellent way to bring in some extra income each month.
A two-thousand and seventeen reports from the National Multifamily Housing Council and National Apartment Association indicates an average annual deficit of two-hundred thousand rental units, meaning demand for rental properties is outpacing availability.
Depending on the amount you’re financing, your down payment, and your credit scores, the interest rate for a rental property maybe 0.25 to 1 percentage points higher compared with a mortgage for a primary residence.
Though seemingly small, the difference can significantly impact your monthly payment and the amount of interest paid over the life of the loan. Ideally, your tenants cover those costs for you since they are paying rent.
But, you have to consider your ability to maintain a second mortgage during times when the property is vacant, or your rental relationship with your tenant goes south. The range of mortgage options available changes when buying rental property versus a primary home.
Typically, government-backed loans-U.S. Department of Agriculture, Federal Housing Administration, and Department of Veterans Affairs loans-require the property being purchases to be a primary residence, ays Jason Larkins, branch manager and loan officer at United Fidelity funding Corp. in Scarborough, Main. “That leaves only conventional loan or nonconforming jumbo loans as options for a rental property.” There is a workaround to the regarding government-backed loans; however: You could use an FHA or VA loan to buy a multiunit home if you live in one unit while renting out the others. Or, you could do an FHA or VA cash-out refinance, which doesn’t have residency requirements on the cash you take out. If you own a home and you’ve been paying down your mortgage and seeing your property’s value increase, you may be sitting on a sizable amount of equity.
While homeowners often use their equity to consolidate debt to make home improvements, you could tap into it to purchase a rental property.
There are three ways to access your equity: Home equity loan, home equity line of credit, cash-out refinance. A home equity loan is essentially a second mortgage. You receive a lump sum of cash, typically at a fixed interest rate. You could then use that money to make a down payment on a rental property or buy one outright if you find a bargain. A home equity line of credit, or HELOC on the other hand, is a revolving line of credit that you can draw against as needed. Larkins says that while a HELOC can be a good way to raise4 cash for a down payment on a rental, it can be more difficult to obtain, as lenders typically look for borrowers with good credit. Because HELOCs typically have a variable, rather than a fixed interest rate, they may become a more expensive way to borrow compared with a conventional loan.
For more information regarding mortgages contact us at Eventum for a consultation.