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If you’re considering the purchase of an investment property, there is a variety of loan programs available including conventional and adjustable rate mortgages with standard 30- or 15-year financing.
The type of loan you obtain has a lot to do with how you plan to use the investment property. For example, do you plan to use it as a personal vacation home, a rental or a combination of both? Do you plan to buy a fixer-upper and sell it quickly? Will it be rental that will earn income each month and appreciate in value over the years? Each scenario has different financial needs that you should discuss with your lender before you make an offer.
When purchasing an investment property, there are more stipulations, a larger down payment and higher interest rates are often required, especially if you plan to use the second home for personal use (i.e. vacation home). You’ll also need to have equity built up in the first home before you can finance a second home.
If you plan to use the investment property as a rental, lenders must verify the income that will be generated on the property. A cash flow statement is needed to confirm the home’s rental history and potential. In addition, only 75 to 80% of the home’s rental income can be considered since the rental market can be unstable at times.
Don’t forget to factor in ongoing issues such as repairs, property maintenance, vacancy rates, resale value and appreciation. Tax benefits and deductions also apply for investors who plan to use the property as a rental.