An income property mortgage is one of the most difficult types of mortgages to obtain in the lending industry. This type of loan is required by many individuals who wish to get into investment property. When trying to obtain an income property mortgage, an individual must have a solid credit history, a large down payment, and a substantial amount of cash reserves and income.
While many people can get traditional mortgages for a principal residence, very few can qualify for an income property mortgage. This type of loan is used in order to help facilitate the purchase of a property that is designed to bring income to the investor. Coming up with the money to buy a property is generally the biggest obstacle that an investor has to overcome to get involved in the real estate industry.
In order to qualify for an income property mortgage, an individual must have a solid credit history. Mortgage lenders will immediately look at the credit score and credit history of an applicant when trying to obtain this type of loan. If the credit score is not within a certain range, the application will not be approved.
Another requirement of many lenders is that the applicant must have a substantial amount of cash for a down payment. In most cases, the investor will need to have at least 20% of the purchase price of the property in order to qualify for the loan. This type of loan represents a bigger risk for lenders, and the lenders want to share a bigger percentage of the risk with the owner of the property. In some cases, individuals may be required to put down as much as 35% of the purchase price.
Individuals who are trying to qualify for an income property mortgage also have to make a certain amount of income. The lender will have a formula that will be used in order to determine how much income will be required in order to qualify. Lenders may be willing to count a certain percentage of the potential rental income, but it will generally not be the full amount of rent that could be received from the property.
Cash reserves are also required by many lenders. Some want to see that an investor has enough money saved up to make mortgage payments on his or her primary residence as well as the investment property for as long as six months. Cash reserve requirements are different for every lender, and some are more lenient than others.