If you’re looking into finding the right investment property for your needs you’re probably concerned about financing. Not everybody that buys an investment property can do so with cash, especially the first time. After several investment properties you may be able to gain enough equity or profit from the sale of a purchase for cash purchases in the future, but if this is your first time making an investment on a new property there are some financing issues you’ll need to know about.
First off, you’ll need about a 20% down payment for the purchase. The higher the down payment the lower interest rates and more likely you are to get the property. If you can put down 25% you may qualify for a better rate. If you don’t have a down payment you could try to obtain a second mortgage on the property but this could be very difficult, especially if you’re not going to occupy the property. Lower than 20% and you may also have to deal with mortgage insurance. (Talk to your lender about how to avoid this)
Credit score and report is also extremely important when it comes to investing in a second home or property. Any score below 740 could cost you additional money at the same interest rate. If you have a score below 740 you may have to pay an additional fee to have the interest rates stay the same as a higher credit score. If your score is below 740, you can’t pay points to pay a lower interest rate. Be sure to speak with your lender or mortgage broker about the ways that you can be creative if you have a lower credit score. [Most borrowers can get a loan with a credit score of at least 680]
It might be better to stick with small, hometown banks or credit unions rather than large companies such as Bank of America. Smaller banks and credit unions will have more flexibility.
You can also ask for owner financing. This is where the owner of the property will actually provide the financing you need at a higher interest rate. (This is a popular option for Panama City Beach as there are many homeowners willing to entertain this idea). However, they may be able to do so if you have a lower credit score, tainted history or simply looking to keep banks out of the transaction. It helps if you bring the plan to the owner stating how you’d like to handle the owner financing and how would benefit the owner.
There’s also private lending and financing. You can find sponsors or find personal investors that can join you in purchasing an investment property. These are very technical and detailed transactions that should be handled by a real estate attorney. Researching your investments thoroughly beat for turning to these type of sources of cash is a smart move.
As with any real estate investment you want to make sure that the home will provide you with the right type of investment return for your needs. If you’re losing money each month, obviously it will not be a profitable investment regardless of what you assume the market will do in the future.
For more information on financing an investment property in Panama City Beach and surrounding towns and communities, please contact me at any time.