Investing in real estate is a great strategy for expanding your portfolio and generating passive income. However, the down payment issue keeps investors from exploring their full potential. In addition, the increase in house prices over the past years has seen mortgage rates soaring. Investors, therefore, have a challenge financing their investment property. With that said, here are a few requirements that would open you up to financing opportunities.
Down Payment for Investment Property Loans
When buying an investment property, you can expect an investment property down payment of between 15% and 25%. However, lenders consider investment properties risky, and buyers can easily default. Like first home mortgages, there are different investment property mortgages.
If you consider a conventional mortgage in Massachusetts, you need a higher income, better credit score, and cash reserves for the down payment.
Investment Property Down Payment Requirements
- Credit Score
Your credit score determines where you fall when making down payments for your investment property. Better credit gives you lower interest rates, closing costs, and fees. For example, to qualify for a 15% down payment, you need a credit score of 720 and above. A credit score of 700 requires a 20%-25% down, and a score of 640-699 needs 25%.
- Income and DTI
A DTI of 37%-45% and a credit score of 660 can get you a 25% investment property down payment. However, if your score is 700 and above, you still qualify for less than 25%, regardless of the DTI. For instance, if you choose to buy a single-family home with a DTI of 35% and below, with a 640 score, you qualify for a 25% down payment.
How to Finance your Investment Property
- Home Equity
With a HELOC loan or cash-out refinance, you can tap into your existing home in Massachusetts equity to make a down payment.
- House Hacking
This strategy involves renting out the property you live in to increase monthly cash flows.
- Wholesaling
Wholesaling involves buying a real estate contract and charging it to an end buyer. Investors will earn cash as a percentage of the final sale.
Real estate is long-term, and you can reap the benefits for many years. You should, however, follow the smart investing principles to enjoy profitability. When financing your property, be sure that you can manage to make loan payments.
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