How To Get A Mortgage For A Rental Property

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A rental property can be a very lucrative investment for you. It can provide you with regular monthly income through rental collections as well as tax deductions to decrease your tax liability. 

Further, the property value may appreciate over time, providing you with additional growth on your investment. You will want to work with a skilled real estate agent who can help you find a great property to invest in. Before you can fully enjoy the benefits of owning a rental property, you may also need to apply for a mortgage.

Choosing A Lender

There are two different types of lenders you may work with when applying for a rental property mortgage. If your rental property is a single family home or a multi-family property with four units or less, you will need to work with a residential lender. 

For multi-family properties with five or more units, you will need to apply for a mortgage with a commercial lender. A commercial lender may also provide you with financing for the purchase of commercial investments such as retail buildings, office buildings, self-storage buildings, and more. You may also choose to work with a mortgage broker rather than a direct lender. 

While a mortgage broker may charge you an additional fee for their services, he or she can easily shop your loan request around to help you find the best rate and terms available. 

Mortgage brokers are able to shop your loan to any lender regardless of whether you are purchasing a commercial or residential property. However, you may find it more advantageous to select a broker with specific experience working with the property type you are buying.

Analyzing Rate Quotes

After you have received a few different rate quotes, you will want to analyze those quotes in comparison to the rental income your property is generating. Every rental property will have expenses related to its operations, including property taxes, insurance, repairs and maintenance costs, and more. 

If you will be using the services of a property management company, you should also consider this expense when analyzing rate quotes. Many rental property investors are interested in applying for a mortgage that enables monthly cash flow. 

So it is necessary to review all rental income and expenses as well as the monthly payment on a mortgage. By doing this, you can determine the amount of cash flow your property may generate for you.

Making Your Mortgage Payment Affordable

After analyzing a property’s income and expenses in comparison with the mortgage payment, it is possible that you may not be pleased with the level of profits the property may produce for you. 

There are several ways you can make your mortgage payment more affordable and increase its profitability. First, you can consider making a larger down payment. 

You may also consider buying down the interest rate or negotiating a lower sales price. Extending the length of the term may result in a more affordable mortgage payment as well.

The Loan Process

Once you have a sales price negotiated and have fine-tuned the financing so that it provides you with favorable cash flow, you can then proceed with the loan process. If applying for a residential mortgage, the process is similar to buying a home. 

Additional information such as copies of the leases on the property may be required, but the remainder of the process and the documentation requested is similar to any other type of residential loan. 

If you are applying for a commercial loan, more significant documentation may be required such as certified copies of operating statements for the property for the last two or three years, a property inspection, and more.

One of the most important factors to consider when applying for a mortgage on a rental property is to apply for a mortgage that meets your investment objectives. Most investors do want a property that will generate cash flow. By following these tips, you can more easily find the right mortgage for your rental property.

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