Your Guide To Buying Investment Property in Colorado

With rental prices rising nationwide, there’s no better time to invest in real estate to generate residual income and build your portfolio. If you are new to the industry you need to take note that financing your investment property will cost more than financing a primary home. You should also expect stricter requirements to qualify since lenders take on more risk with these types of loans.

Choosing the right investment property is only one part of the equation. Once you’ve found that perfect rental property, the next step is how do you finance it?

Asking help from a mortgage broker in Colorado can help you choose the right loan product for your rental home.

To guide you in your real estate investing journey, we take a look at various ways to finance your project and share some tips on how to improve your chances of success.

Tips for Financing Your Investment Property

An investment property is defined as real estate bought to generate income through rental or appreciation.

Choosing the wrong type of loan can derail the success of your investment so you need to understand the basics of each kind before choosing financing for your investment property in Colorado.

Conventional Loans

If you have a primary home you’re pretty familiar with how a conventional mortgage works. These loans are guaranteed by Fannie Mae and Freddie Mac to take some risk off lenders.

How much downpayment you pay is based on your DTI and amount of cash savings. The number of units in the property is also taken into consideration.

The majority of fixed-rate mortgages for investment properties need at least 15% down payment on an SFH. If you are buying a two to four-unit property, lenders usually ask for 25% down payment.

A larger down payment gives lenders greater security against losing their investment. With more skin in the game, you can negotiate for a lower interest rate.

To have a higher chance of approval, you need to prove that you can make mortgage payments even if there are periods of vacancy. Prepare to submit W2s, bank statements, payslips, and tax returns. 

Local Mortgage Professionals

For investors who don’t have enough savings for a large down payment, you can always try your friendly neighborhood mortgage professionals for financing rather than a large financial institution.

Local mortgage professionals can be more flexible than the big players plus they are more familiar with the local market and are more interested in local investments.

They also have access to a wide range of loan options.

Get in touch with our loan experts at Castle Rock Mortgage if you want to learn more.

Use Home Equity

If you have a significant amount of home equity in any of your properties you can leverage this as a form of financing. There’s a home equity loan, HELOC, or cash-out refinance.

Home Equity Loan

A home equity loan is secured by the equity in your home and allows lenders to give low-interest rates at repayment terms of up to 30 years. If you have excellent credit, your rates can even be lower.

HELOC

A HELOC or home equity line of credit is another way to use your home equity. The loan is also secured by your home equity but in this case, you draw funds as needed and not as a lump sum. You can get even lower rates with HELOCs versus home equity loans but their rates are variable.

Cash-Out Refinance

A cash-out refinance is a new loan that allows you to cash out your existing mortgage in favor of a new and larger one. The new loan usually has a shorter term and lower interest rate. The cash you get can be used to finance your investment property.

Investor Cash Flow Loans

Castle Rock's Investor Cash Flow Loan program allows borrowers to qualify based on rental analysis to determine property cash flow. One perk is that personal income is not required to qualify. Instead, a debt service coverage ratio (DSCR) measures a property’s expected cash flow to determine the ability to repay a mortgage loan.

Owner Financing

There was a time when asking for owner financing raised suspicion among sellers about potential buyers. Times have changed and the practice of requesting owner financing is more acceptable since the standards for borrowers have increased.

If you can present a win-win situation with your seller then this option may work for you.

Hard Money Lending

Hard money lenders provide shorter terms but higher interest rates compared to conventional lenders. These loans are ideal for fix and flip investors who will benefit from the faster approval process and shorter loan terms.

Have you heard about a commercial mortgage loan in Colorado? You can ask our loan officers for more information by giving them a call or sending a message.

Are You Ready To Enter The Real Estate Investing Arena?

Real estate investing can make you tons of money but you should be ready to play a long-term game. As long as you follow smart principles of investing you’ll be on your way to making it big in this business.

If you are ready to finance your first investment property, having an experienced mortgage broker by your side can make all the difference. You wouldn’t want to end up choosing the wrong loan product and lose money in the long run.

Castle Rock Mortgage Loans offers commercial mortgage loans that are designed specifically for real estate investment properties.

Get a free consultation by calling or sending a message on our website today!

 


* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.