It is important to first acquire a good financing arrangement in order to gain a profitable financing investment. The investment can be lucrative especially if the cost in financing is lower than the income generated by the owners. Mortgage for Investment property is one of the known alternative for acquisition property funding. The terms in payment and interest rates are lower and favourable to the investor.
But what is mortgage and what do you know about it? When a loan is secured by a property that serves as the source of payment to protect the lender in case the borrower fails to repay at the end of the loan term.
The interest rate is one of the features of mortgage. A person is charged an interest rate after borrowing money from the lender. Usually the rate of interest of mortgage for investment property is comparatively lower than an unsecured loan because collateral lowers the risk for the lender. Risk plays a big part in the financing costs. So the risk is charged in the interest rate.
another feature is what we call the principal. There are two methods for the borrowed amount to be repaid and that is at the end of the “interest only” (IO) loan term or periodically along with the interest (P & I loan). The IO loan interest is regularly paid during the “interest only” period. If you are a frequent payer and makes regular payments of the principal and interest then this will help shorten your payment compared to an IO loan.
Another thing that you need to learn about mortgage for investment property is the loan term. The loan needs to be settled in full at the end of the loan term. A mortgagor must pay the lender at a specific length of time and it may take 25 to 30 years before a mortgage loan can be repaid. This is a good option for buyers who are in tight budget. However, the longer the years to repay the loan, the higher the interest cost of the mortgage will be. The periodic repayments may be lower with a lengthy term but brings higher interest rates.
So before an investor should make any serious consideration about doing some mortgage for investment property, one should weigh all the options because this would involve a big expense that should be maintained throughout the loan term. There are many lending companies nowadays that offer attractive loan features such as the mortgage fees, other varying interest charges and discounts and a mortgage broker is knowledgeable on this. That’s why wholesale and institutional lenders prefer working with a mortgage broker to assist them with getting the best financing deal for a client’s needs. So the best partner for an investor, especially today that there are a lot of features to study and administer in a mortgage loan is a mortgage broker.
Investment may be counted on the gross or the net basis. Net investment is gross investment minus depreciation. Investment may be ex-ante or planned or anticipated or intended investment; or it may be ex-post, i.e., actually realized investment, or when investment is not merely planned or intended, but which has actually been invested or implemented. This is so true when Buying Investment Properties.
Another classification of investment may be private investment or public investment. Private investment is on private account, i.e., by private individuals, and public investment is by the government. Private investment is influenced by marginal efficiency of capital i.e., profit expectations and the rate of interest. It is profit-elastic. Public investment is by the state or local authorities, such as building of roads, public parks etc. In public investment, profit motive does not enter into consideration. It is undertaken for social good and not for private gain.
Investment which is independent of the level of income, is called autonomous investment. Such investment does not vary with the level of income. In other words, it is income-inelastic. Autonomous investment depends more on population growth and technical progress than on anything else. The influence of change in income is not altogether ruled out, because higher income would probably result in more investment. But the influence of income is negligible as compared with the influence of population growth and progress of technical knowledge.
Examples of autonomous investment are long-range investments in houses, roads, public buildings and other forms of public investment. Most of the investment is undertaken to promote planned economic development. It also includes long-range investment to bring about technical progress or innovations. Public investment means investment which occurs in direct response to invention, and much of the long-range investment, which is only expected to pay for itself over a long period, can be regarded as autonomous investments.
Obtaining A First Mortgage For Investment Property
As the name implies, a first mortgage for investment property is simply the first loan that is issued for the property. When you purchase a piece of real estate, the loan that you receive as financing is also known as a first mortgage.
Before you apply for a first mortgage for investment property, it’s a good idea to obtain a copy of your credit report and confirm the accuracy of the information listed therein. Every 12 months, you are entitled to receive a free copy of your credit file from each of the three credit reporting agencies, including Equifax, Experian and TransUnion. The best way to choose a lender for your first mortgage for investment property is to shop around. Compare interest rates, required down payments and other loan terms in order to find the best fit.
When you speak to a lender regarding a first mortgage, they will explain the required down payment, invite you to fill out a loan application, access your credit file and possibly even provide you with a loan decision within hours. In most cases, a lender will require a down payment ranging from 20-35% for investment properties. Depending on your credit history, you may be asked to pay a slightly higher down payment than average. Because the purchase will not be used as a primary residence, the loan term will likely be shorter than a traditional mortgage.
When it comes to a first mortgage, every lender will require that a title search be performed on the property prior to approving a loan. A title search can be performed by a licensed attorney specializing in real estate and is beneficial for making sure that there are no judgments, liens or back taxes on the property. In addition, a title search will confirm the identity of the property owner and will ensure that the seller has the full right to deed the property to a new owner.
While shopping for a lender, most investment property buyers will apply with more than one lending institution. Although it is widely known that multiple credit inquiries in a short period of time may lower your credit score, applying for a mortgage is slightly different if the inquiries are made close together. The reason is because lenders expect that you will apply at multiple locations and may, therefore, not let recent inquiries for a mortgage loan deter them from approving your application for a first mortgage for investment property.
A first mortgage for investment property will be more likely to be approved if the hopeful buyer can provide an appraisal confirming the market value of the property. A loan is even likelier to be approved if the property is being sold for below market value, which will result in instant equity. These factors, combined with an appreciating market and a large down payment will increase your chances of being granted a first mortgage for investment property.
