Mortgage Resources | 

Obtaining The Best Property Investment Loan

Selecting the right property investment loan is not always about finding the lowest interest rate.  The best loan for your investment property is the one that works best for your overall investment strategy.  For example, a loan with a very cheap interest rate could work out expensive for an investor wanting to buy and then re-sell a property quickly (flipping) if this loan comes with a hefty application fee and an even higher penalty fee for paying out the loan early.  This would affect your overall profit if faced with such high fees.

 

An investor who wants to purchase a property to simply rent it out and keep it for a number of years for the rental income with no intentions to sell, they could be missing out on much cheaper interest rates available or alternative loan options compared to the ones offered by the lending institution over the counter.

 

Property Investment Loans should therefore be seen differently when compared to standard loans such as residential property loans and even personal loans.  There are different challenges when dealing with property investment loans such as; loan amounts you are typically looking to borrow tends to be higher for a property investment in comparison to your residential property, and lenders tend to analyze your personal debt ratio as well as the debt coverage ratio for property investment loans.

You do need to do your homework before applying for property investment loans.  By doing your homework, you can substantially increase your chances of your investment loan approved.  The lender will look at your Loan to Value Ratio (LVR).  The LVR in property investment is calculated in the same way as with residential lending.

To clarify, LVR is basically the debt on the property with regard to current market value of your property.  For example, if the present market value of your property is $200,000 and you have a mortgage of $140,000 owing, your LVR would be 70 percent.  Mortgage lenders typically have no problem approving a Property Investment loan with a 70 per cent LVR or higher.  The majority of the mortgage lenders dealing with property investment loans tend to require at least 20% deposit (or equity in another property), with a maximum LVR of 80 percent.  Some lenders may approve property investment loans with up to a 95 percent Loan to Value Ratio if you take out Mortgage Insurance.

Most mortgage lenders do also consider your potential Debt Coverage Ratio (DCR).  Debt Coverage Ration provides the mortgage lender with information on how much money you will earn from your property compared to the overall costs of the property.  This DCR ratio is calculated with the help of your net operating income.  Your net operating income is then divided by the total mortgage debt you have on the property to calculate your debt coverage ratio (DCR).  Most mortgage lenders will have no problem providing you with a property investment loan if your DCR is in the range of 1.2 or better.

Remember, Investment Property Loans should be treated like all other form of loans.  Make sure you compare the interest rates, features, fees and charges.

News Headlines