An investment property loan is a mortgage that has a sole purpose is for the purchase of an income-producing asset or property. This can be applied from everything from one-unit condominium to large commercial buildings. There are many different types of investment property loans.
Lets discuss these different types of investment property loans in Colorado:
- FHA Loans. Two-to-four unit homes can be purchased with a mortgage backed by the FHA. Rent can be collected on all units that qualify. You must live in the units for at least 12 months first in order to qualify.
- Owner Financing. Sellers can be willing to substitute a lender and offer temporary financing. The goal behind this is so you can purchase a home with a large non-refundable down payment. Sometimes an owner financing arrangement can include a balloon payment. This means that you will have to pay the loan back within a time period or the owner can retake ownership.
- Cash-out refinance. A cash out refinance is when you grasp more mortgage than what you owe and pocket the difference in cash. This difference can be used to purchase an investment property.
- Non-QM loans. If you cant qualify for any of the programs that are mentioned on this list than you may qualify for a non-qualified mortgage (non-QM). This qualification can be based exclusively on the rental income received on the home you’re buying or planning to buy. Your interest rate and down payment will typically be higher than they would with other regular loan programs.
- VA joint loans. This is a VA multifamily loan that is exclusively for military borrowers . They can buy property that is up to seven units as long as one is living in the unit. These loans are guaranteed as a no money down or no down payment loan requirement.
- Home equity loan. With this option you can use a good chunk of equity or HELOC (home equity loan or a home equity line of credit). With this, you borrow a portion of your equity and leave your current mortgage in place. A home equity loan is paid like a lump sum and typically has a fixed rate. A HELOC however works more like a credit card that can be paid off over a period of time.
- Hard money loans. These are for your investors that like to flip. Hard money investors will lend money knowing that it can be paid off quickly (speed is key here). However, you will often need at least a 25% down payment and pay high costs upfront. There may even be prepayment penalties involved with these types of loans.