Investment and commercial properties have different loan requirements than residential properties.
A higher down-payment is required. The minimum is 25%. This is the first key difference.
The reason for this: banks want to see that the qualified buyer has skin in the game.
An investment property loan is a much riskier loan for banks. People usually prioritize their own home mortgages first. They do not want to be foreclosed on and be left on the street. This means the loans on their primary residences get paid off first. There is more risk for the bank, as the loan for the investment property is “second in line” to be paid. You will not see the 10% or even 20% down-payments that banks accept on primary residences.
The second key difference is you can expect a higher interest rate. Not everyone can make it as a landlord. It’s just like any small business. Small businesses and landlords fail often. If the venture fails, the bank does not get it’s money back. In short, higher risk for the bank = higher interest rate.
Overall, the qualified buyer can expect a higher interest rate and higher down payment. This is a general overview. It is recommended you go into more detail with a licensed and qualified lender.
If you have questions or would like to discuss further, do not hesitate to reach out!
If you have further questions and would like to discuss in greater detail, please contact me here:
Investment Property Loan Requirements
Robert O’Keefe, ROK Realty
Broker of Record – Keller Williams Park Views
(201) 372-4084 (cell: text/call)
(201) 939-0050 (office)
