Finding the Best Down Payment, Mortgage Loans For Investment Properties

Investing in real estate can, under the right circumstances, be quite profitable.

Whether you plan to flip it (a term for buying a property, fixing it up, then selling for a profit) or rent it out, real estate is a way to expand your cash flow, according too Quicken Loans.

But even when you know what kind of property you want to buy and how you want to manage it, you have to find a way to finance the purchase. Granted, there are many no down payment mortgage options available, but if you opt to put a down payment on the property, you have to know where to come up with the cash.

You also need some cash to close on the property, then you have to be able to make the monthly payments on the mortgage loan.

So where do you start?

You could start with your savings accounts, but wisdom says your savings are better left where they are right now. Even if you use some of your savings, you never want to dip too deep into that pool, or you risk losing the financial cushion you’ve worked so hard for. So where else can you look?

One smart place to get the money would be to tap into your home equity. If you’ve built up some equity in your primary home, you can get a home equity loan that will give you the cash to use as a down payment.

There are several advantages to home equity loans:

1. Where traditional first mortgages can take weeks to close, a home equity loan may take only several days.
2. The mortgage interest is tax-deductible.
3. Home equity loans offer flexibility. Some are even available with interest-only mortgage payment options where you can choose, when you want to pay only the interest due for that month; although you can still pay as much principal as you want.

Now that you’ve found a way to finance the down payment, how do you finance the rest of the property? A home equity loan allowed you to extract the money - now how to you spend it wisely?

There are several loans available that are good for the purchase of an investment property. Some loans allow you to state your income, meaning that you don’t have to document your income. It makes the mortgage process easier because there is less paperwork, but you need to have a good credit score to do qualify for no doc loans.

There are option ARMs that allow a significantly lower monthly payment as well. In fact, option ARMs give you just that - options. You can choose a 30-year traditional mortgage payment, a 15-year payment, an interest-only payment or a minimum payment, where you pay less than the interest due for that month.

If you decide to go this route, look for an option ARM that offers a fixed interest rate, one that doesn’t allow you to defer too much interest and doesn’t force you into a prepayment penalty.

Coming up with a down payment to buy an investment property doesn’t have to be hard, especially when you don’t want to dip into your savings. Neither does financing the rest of the property. Speak to an experienced mortgage broker to find out which mortgage best fits your individual situation and investment goals.