Things to Consider When Applying for Investment Property Mortgage
One of the most popular ways of generating passive income is through investment in real estate properties. This may involve investing in rental properties or buying and selling of homes making your profits. Many people lack the considerable capital required to invest in rental properties. One way of financing investment property is through applying for a mortgage. The mortgage involves drafting your investment property proposal and attaching it with your details which are forwarded to financial institutions. Below are things to consider when applying for investment property mortgage.
You should know the rates of interest that different banks charges for the rental properties loan. This is because although two institutions may have an equal figure of the mortgage rate the final amount you payback may be very different. This is because the type of mortgage rate you agree to use will determine the amount of interest you will pay. Hence some rental property mortgages may be very expensive while others may be relatively cheap hence the need to compare different banks rates. This exercise is undertaken to evaluate whether you can afford to repay the investment property mortgage with your available level of income and income generated from the investment property.
You should ask the bank’s credit officer how long will it take to repay the investment property mortgage if it is granted. The objective of this step is to determine the mortgage repayment installment and the period revenues of the rental property and see if they are enough to repay the loan within the given period. Therefore you need to have an accurate estimation of the periodic income from the investment property and see if it will cover the period amount that you are supposed to pay the financial institution that loaned you the money. an ideal situation is where the investment property can generate surplus income that covers the mortgage installment and leave you with some extra money.
Apart from paying the mortgage interest there are other fees and payments that you are supposed to make which is an essential thing to consider. In most cases you the financial institutions do not finance the full cost of the investment property. Hence you need to know how you will raise this money when the need arises. Also, some other fees such as insurance premiums will be paid together with the monthly installment so you need to know how much they total up.
You should know the criteria the financial institutions use to declare you have defaulted on payment of the investment property mortgage installments. This is very important as sometimes unavoidable circumstances may happen to make the rental property unable to raise sufficient money to cover for the monthly loan installment. Therefore you need to know the action the lender will take to have proactive measures to solve that problem.