Looking to finance a rental real estate with no intention to live in the property? A non-owner-occupied investment mortgage can be an ideal solution for you. However, if you plan on doing a few renovations to boost the current value of your property, you can also look into non-owner-occupied renovation loans. Before we get into the latter, you must first understand what non-owner-occupied loans are and how they work! Let us take a closer look at these financing options for your subsequent potential real estate purchases.
Non-Owner-Occupied Loans: What Are They, And How Do They Work?
Non-owner-occupied mortgages are a kind of mortgage designed for residential real estate that features up to four units. One twist is that the borrower must not plan on living on the property. If you are not planning on using real estate as your primary residence, you will need to look for a non-owner-occupied loan. However, if you wish to finance a vast apartment complex with more than four units, then non-owner-occupied investment mortgage will not work for you. When a real estate lender is considering your application, the distinction between owner-occupied and non-owner-occupied loans comes into play.Â
A real estate lender will use this property classification to determine an interest rate for your loan. If the borrower is looking for a non-owner-occupied loan, the lender will charge a much higher interest rate. This is because non-owner-occupied real estate has a significantly higher risk of default. Real estate lenders compensate for this extra risk by giving you a higher interest rate. Besides agreeing to the interest rate, your lender may also ask for a larger down payment in case of a non-owner-occupied loan. An increased down payment is another way for lenders to protect themselves from the extra risk associated with such mortgages.
How Much Down Payment Should You Make?
In general, all investment real estate properties require a sizeable down payment than other owner-occupied loans. Although a real estate lender will ask you for a larger down payment for such loans, the exact percentage will significantly depend on your chosen lender. However, you can expect a total down payment anywhere from 20% to 30%. Comparing this amount to an owner-occupied mortgage (which can be as low as 0%) may look like a lot. But a larger down payment helps lenders offset that overall risk of potential default.
The overall risk of default is often high when a real estate investor obtains a property using a non-owner-occupied investment mortgage. Hence all lenders tend to protect themselves by charging higher interest. Of course, the borrower’s down payment type and credit score will also significantly affect the interest rate. If you, as the borrower, have a sizeable down payment and a good credit score, you may receive a lower interest rate. The kind of real estate and the total number of residences will also affect your interest rate.
Using Non-Owner-Occupied Renovation Loans
Non-owner-occupied renovation loans are a little different from regular non-owner-occupied loans. Rather than using the funds to buy a real estate property, a real estate investor can use funds from a non-owner-occupied renovation loan to purchase a real estate property and cover any renovation costs. All real estate investors believe this to be a great opportunity. However, there are a few things that you must keep in mind before making a decision. These considerations include:
- The renovation needs to be a permanent part of your property
- The renovation should help increase the overall market value of the property
- Such loans are ideally limited to four financed properties per borrower
Every real estate lender will have a slightly different requirement for non-owner-occupied renovation loans. You must be crystal clear about your loan details with an individual lender before you move forward with the deal. If you wish to secure an investment real estate that needs some renovation to give you the best returns, then a non-owner-occupied renovation loan can be the best way for you. If you are a new real estate investor and wish to learn more about how these loans can benefit you, contact Real Estate Funding Solutions immediately!
Need Help With Financing? Real Estate Funding Solutions Has Your Back!
To learn more about non-owner-occupied renovation loans, contact the Real Estate Funding Solutions professionals for help. We have tons of experience working on such projects and years of training, making us the best in the business. Our experts can help you gather all the essential documents you need for the application and will stick by your side until closing. If you have any questions about real estate financing or want to get started on your application process, call us at 855-913-8637 immediately! With the help of our experience and guidance, you can easily make a profitable long-term decision for your future.