Home Equity Loans For Investment Properties

Posted on: January 27, 2012

Categories: Buy, Other Articles

Author: lbuen

Mortgage green bay Home Equity Loans For Investment Properties

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Investors Go on a Real Estate Shopping Spree Using Loans for Investment Properties

With so many people losing their homes to foreclosure, rental properties have regained its popularity. Investors who are quick on the uptake are happy to go on a shopping spree of rental properties at rock-bottom prices in places that have endured the brunt of the economic crash, such as Las Vegas and Sacramento. Who would not be attracted to investment properties that are 15 to 40 percent less than their value one to three years ago? If you have the funding to back your investment or extra funds to cover for the down payment, why not? If none, why not consider home equity loans for investment properties?

Get Loans for Investment Properties : But First, Show Me the Money!

Mortgage lenders find funding traditional home loans to be risky and view financing investment property to be fraught with more danger. For this reason, loans for investment properties are often more expensive in compliance with the “risk-adjusted pricing” of Fannie Mae and Freddie Mac. If you have not saved up to pay a hefty down payment, such changes may render the loan beyond your means.

Mortgage Insurers Won’t Underwrite Rental Properties

One important requirement to obtain loans for investment properties is to secure a mortgage insurance. Many investors find themselves in a stalemate because even if they make the grade under Fannie and Freddie’s yardstick, they could not secure a mortgage insurance because a significant number of mortgage insurers no longer cover rental properties. So how can you wriggle out of this dilemma? Turn to home equity loans for investment properties.

Tapping the Value of Your Home to Get Loans For Investment Properties

An acceptable credit score and sufficient equity in your primary residence may be your key to opening the door to a new giveaway investment property by using them to tap a home equity loan. With these components you can get financial backing to pay the down or to fund the total purchase. If you’re lucky, you can find lenders offering home equity loans for investment properties without charging lender fees and points. Your lucky stars are really what they are if your primary home is not located in a distressed area, unlike the investment property you are buying, because obtaining the mortgage is made even easier.

Warning: Home Equity Loans for Investment Properties Can Leave You Homeless

Before jumping the gun, you first have to realize the risk involved in this kind of financing. Are you willing to risk your home to get a loan for investment properties? Well, you have decided to be an investor, right? And investors take risks, calculated risks. To become a better investor, you must learn how to calculate and mitigate risks and be able to distinguish which ones are worth taking and which ones are to be avoided. In the case of taking out home equity loans for investment properties, you can set contingency measures to cushion you from the risk of losing your residence. Here are some of these measures worth doing:

Ensure that you can easily pay for monthly mortgage.

The fundamentals of investing in a rental property may sound simple: get a loan to buy the property, rent it out and let rental income take care of the mortgage. However, the various expenses involved in running a rental property make a landlord’s life not that simple. Besides mortgage payments, you have to realize that you have to pay for taxes, maintenance, liability insurance, homeowner’s insurance, etc. Be scrupulous in computing for all of your expenses vis-a-vis the rental income. See to it that with all the expenses involved in running a rental property, you can still easily pay the monthly mortgage.

Cushion property investment from potential vacancies.

When I say compute ALL expenses involved in running your rental property, I mean ALL and this includes expenses that may not have been incurred yet and are unpredictable, such as potential vacancies. Despite the many people who have lost their homes and need a place to rent, vacancies do occur and could potentially dent your net income. You may want to hew to the 25 percent vacancy factor of most underwriters when you compute for your net rental income.

Set an emergency fund.

Set aside extra funds to cover for a few months of mortgage payments as fallback in case of an emergency, such as when your tenants miss their rental payments.

With proper planning, home equity loans for investment properties may be the answer to investors who need to act swiftly on a property investment opportunity.

 Home Equity Loans For Investment Properties
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