Rental Loans

What are Rental Loans?

A Rental Loan is a type of loan that Real Estate Investors will apply for when they are seeking financing on a long-term buy-and-hold rental investment. Investors interested in becoming a landlord will pursue a property that they can purchase and keep as a rental. Rental properties come with the potential for earning monthly cash flow from tenants, building wealth, appreciation, and expanding one’s portfolio of Investment.

Consolidating higher-rate loans to a lower rate and single mortgage is easier to track and manage. Lending decisions are based on expected Property Cash Flow. Calculating a Debt Service Coverage Ratio (DSCR) aids the lender in determining if a property will generate enough income for loan obligations. Gross Monthly Income/Principal, Interest, Taxes, Insurance, and Association Fees provide a good range for loan consideration. Whether an investor is looking to purchase a property or refinance an existing one, it is important to understand the particulars of a rental loan.

Who can Be Eligible for a Rental Loan?

Each lender will have different restrictions on the borrower and their business corporation. For example, some lenders may accept the following as possible loan applicants:

• Citizens
• Permanent Resident Aliens
• Non-permanent Resident Aliens Foreign Nationals
• LLCs (Limited Liability Corporations), Limited Partnerships, General Partnerships & Corporations

 

What are the General Terms of Rental Loans?

Rental Loans can be fixed 30-year or hybrid adjustable rate mortgages (ARMs). ARM rates with 3/1, 5/1, 7/1, and 10/1 configurations are commonly offered. Rates are based on the specific property and borrower at the time of the application. Some rental loans can fund as low as $40K and reach maximum amounts upward of $3M

 

What type of Properties Qualify for Rental Loans?

Depending upon the lender, certain properties are eligible for a rental loan. When looking for a rental loan, investors should research what types of properties their potential lenders will finance before making a final decision. The following are some properties that can qualify for a rental loan:

• Single Family Residences (SFR)
• 2-4 Unit Properties with Loan To Value (LTV) less than 80%
• Planned Unit Developments (PUDs) with a 10-acre maximum. Additional restrictions may apply.
• Fannie Mae warrantable condominiums with a Loan To Value (LTV) less than 70% Townhouses.
• Non-Owner occupied (investment) properties