Investment property financing is a bit different from owner-occupied financing. Obtaining investment property financing comes with certain caveats that are not part of traditional owner-occupied home financing. If you are financing a property that's for the sole purpose of generating rental income, there are things you need to know about the process. Here's what you need to know about investment property financing.

Lenders Have Specific Requirements

Investment property financing is not as easy as securing a first home mortgage. Lenders are more cautious when writing a loan for investment properties because the buyer is less invested in the property. Lenders will require a larger down payment on an investment property mortgage. A larger down payment is required to ensure that you're equally invested in the property. In our experience, you can expect to pay 15%-25% or more for your down payment. According to an analysis by Redfin, about 75% of investment properties are paid for in cash to avoid the hassles with financing.

Income and Expense Statements

If you are asking the lender for a loan for an investment property, be prepared to provide an income and expense statement for the property. In some cases, if the property has yet to be fully rented, you can provide the lender with projections or past histories. Lenders want to be able to evaluate the profit margin or the potential profit of the property to assure you will be able to cover the mortgage payments.

You Have a Lot of Choices to Make

Unlike residential owner-occupied financing, investment property financing can come in many different shapes and forms. There's a wide range of financing options for investment properties that come with different interest rates and terms. There are short-term options to bridge the gap if you plan on flipping the property. There are long-term options, and there are options in between.

You May Have to Think Outside the Box

Finding the perfect financing option for your investment property plans may mean shopping around with different lenders. Most lenders will write a loan for an investment property. However, not every lender is as “friendly” when it comes to investment properties. Some lenders will charge large fees and have strict terms.

Thinking outside the box and working with lenders specializing in property investment financing can work to your advantage. To learn more about the financing process, give us a call today at Investment Capital Partners LLC. We'd be happy to answer any of your questions.