The concept of the income property gets a lot of attention these days, with various reality shows and the internet putting it out there for all to see. Purchasing a house or a condo with the thought of renting it out can be a good way to build your portfolio and contribute to your future wealth.
Essentially, your tenants pay off your mortgage for you and you own the house free and clear when it’s all said and done. Of course, you still need to get the mortgage in the first place so here are some tips on how to choose the right one.
Consider Your Goals
Before you choose a specific mortgage product for your income property, it’s a good idea to figure out your long and short term goals when it comes to the property. Do you want the rental situation to go on indefinitely? Do you ever want to live in the property yourself? Do you envision using it commercially at any point?
This is the time to figure all these things out, because the type of mortgage you get will affect how much you end up paying, and there are usually different products available to cater to different situations.
Research Your Lender
Different lenders offer different mortgage products and they each follow a formula to help determine rental property mortgage rates. This formula differs from lender to lender, so take the time to shop around and research a few before you make a decision.
More than Just Rates
Mortgage rates are the thing that most people zero in on when they are looking into income properties, but there are other elements that are important, too. Ask about things like minimum net worth requirements, flexible rental income rules, second mortgage options or even the possibility of getting a line of credit along with your mortgage.
Things to Consider
Before you go searching for the right mortgage for your income property, consider some of these factors:
- How much income is your property going to generate? This may have an impact on the type of mortgage you get.
- Do you have enough saved for a 20% down payment?
- Do you have what it takes to be a good landlord? This isn’t necessarily related to the type of mortgage you get, but it is a consideration.
When all is said and done, the “right” mortgage for an income property depends on several different factors, and the answer isn’t the same for every borrower. Speak to a mortgage expert who knows the industry inside and out to get the best rates and the best terms for your situation.