Buying a rental property is a wonderful financial investment in your future. If you’re a seasoned real estate investor, you have no qualms about obtaining a loan for your next rental property. If you’re just getting started, investigating a new type of loan can feel intimidating. 

The good news is, the single-family home rental industry is the fastest-growing segment of the housing market and there’s never been a better time to get involved. Why?  Because in 2021, many are still choosing to rent a home rather than buy one.  Let’s discuss what an investment property loan is, why you need one for your rental property, and how to get started on your journey.

What Is An Investment Property Loan?

An Investment Property is a residence that you purchase with the intent of renting it out and gaining an extra stream of income. 

An investment property loan is financing that can help you buy an investment property and begin growing your wealth. If you want to buy a true investment property that doesn’t have residential requirements (aka you don’t have to live in the property for a period of time before renting it out) then you will need to obtain an investment property loan. 

How Do I Find An Investment Property Loan?

Most investors looking to secure a rental property will need an investment property loan. The tricky part is figuring out which kind is right for you. If you’re serious about growing your wealth and portfolio, let’s discuss a few popular avenues to secure funding for your rental property.

1. Local Bank

Many investors find success in partnering with a bank to make their investment dreams come true. If you’re looking for a five or ten-year loan, you may consider working with your local bank. Working with the bank is a great option for someone with great credit looking to optimize their financing.

2. Alternative Lenders

Non-QM or Alternative Lenders are your most versatile option. Alternative lenders are not beholden to the restrictions of the bank, so they have the flexibility to offer you 30-year lending terms and create investment property loan programs tailored to your specifications. 

While you may have higher interest rates and fees with an alternative lender, you have more flexibility and lower document requirements. This means no hauling out your tax returns or previous employment documents!

3. Agency Loans

The draw of agency loans is that they are the least expensive option, although they can be the most difficult to obtain. You’ll have to provide substantial documentation of employment, cash flow, and other income that can slow down the process. If you look good on paper and only plan to acquire one or two rental properties, an agency loan may be for you.

How Do I Get Started?

In order to get started, let’s discuss how you can qualify for an investment property loan. 

1. Look Good On Paper

As mentioned above, most lenders will need to see documentation of sound finances, previous employment, pay stubs, tax returns, and proof of a high credit score. Make sure you look stellar on paper before looking into getting a rental property loan. Once you get these documents in order, be sure to monitor your credit score until your loan closes!

 

2. Get Your Finances In Order

Buying a rental property is a huge financial investment. Prepare for a sizeable downpayment, (at least 20%) and ensure you have 6 months of cash on reserve in the event you need to make repairs or pay the mortgage if there’s a tenant vacancy. 

 

3. Check On The Property

Before you apply for a loan, be sure your rental property doesn’t need any huge repairs; your lender will likely check to see that the property doesn’t require a large construction job and is mostly tenant-ready.

In 2021, be the person to collect that monthly rent and create a new stream of income for your family; Look into getting a property loan and invest in a rental property today.