How to Get a Loan for an Investment Property 

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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If you’re in the market for an investment property loan, you’ll have to go through the same process as you would for a traditional home loan. However, you’ll likely find that there are a few more hoops to jump through as the rules are more stringent. It’s possible that some lenders will offer you a higher interest rate if approved for a loan to offset the risk of default posed to the lender. 

This guide breaks down how investment property loans work, what to expect when applying and where to look for funding when you’re ready to move forward. 

Traditional and NQ Mortgage Loans

 
Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

What is Considered an Investment Property by Mortgage Lenders?

An investment property is a home that’s acquired solely to generate income. So, instead of living in it, you will rent the property out or make renovations and flip it to earn a profit. 

Investment Properties vs. A Second Homes or Vacation Home

The terms second home and vacation are often used interchangeably. However, they’re not the same, and different rules apply to each. The primary difference between the two is how they’re occupied. 

You’re required to live in what’s deemed a “second home” for some portion of each year you own it. But there’s no occupancy requirement for “vacation homes” since their sole purpose is to generate income. 

What Type of Loan Do You Need for an Investment Property?

When you’re ready to purchase an investment property, there are four types of loans to choose from. 

Conventional Bank Loans

Conventional bank loans are the most common of the four. They’re offered by traditional banks, credit unions and online lenders and conform to Fannie Mae and Freddie Mac lending standards, which limit the amount you can borrow. 

Hard Money Loans

Hard money loans typically cater to investors looking to flip properties. However, you’ll likely need a hefty down payment of 25 percent or more, and the interest rates are often steep. 

Traditional and NQ Mortgage Loans

 
Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

Private Money Loans

As the name suggests, these loans are funded by private entities. It’s not uncommon for real estate investors to offer significant contributions to make these loans possible. 

Use Your Home Equity

If you have a sizable amount of equity available in a property you own, consider converting a portion of it to cash to fund the purchase of an investment property. A home equity loan or home equity line of credit (HELOC) can make this possible – both act as second loans on your existing mortgage. Or you can take out a cash-out refinance if you’d prefer to avoid managing two loans at once. 

Investor Cash Flow Loans

The Investor Cash Flow Loan is offered by Angel Oak Home Loans, a full-service mortgage lender that provides an assortment of flexible home loan products. It’s designed for real estate investors and doesn’t require lengthy tax returns or income statements to qualify for funding. Instead, the lender will review the projected cash flow of the investment property to determine if you’re a good fit for a loan. 

You could be eligible for a loan from $75,000 to $1.5 million, and there’s no limit on the number of properties you can acquire. Furthermore, you’re allowed to purchase properties in the company’s name. 

Visit the website and submit an inquiry to learn more about this innovative funding opportunity. 

Is It Typically Harder or Easier to Secure a Loan for an Investment Property?

It can be challenging to secure a loan for an investment property, especially if you’re searching during an economic downturn when lending criteria are more stringent. But even in times when the housing market is performing well, you could still face obstacles as there are fewer lenders to choose from. Furthermore, these loans are riskier since the likelihood of default is higher, making them harder to qualify for in some instances.

How Much Down Payment Do You Need on an Investment Property?

You’ll generally need a down payment of at least 15 percent – it could be 20 percent or more with some lenders. Keep in mind that putting down 25 percent may make you eligible for a lower interest rate. 

Get a Loan for Your Investment Property

If the Investor Cash Flow Loan seems like it could be a good fit for you, reach out to Angel Oak Home Loans right away. Simply complete the short online form, and a loan officer will contact you to discuss your unique funding needs and how to move forward with the application process. 

Angel Oak

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All data provided by the Home Mortgage Disclosure Act, at cfpb.gov updated Dec, 19
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