Investment Property Loans
A Home For Investments
Investing in a property is a great way to make passive income or provide a vacation home for your family. At PennyMac, it’s our job to make your investment goals a reality by providing the right financing to get you started or cut costs from your bottom line.
What Is an Investment Property Loan?
An investment loan is for a property that has been purchased with the intention of earning a return on the investment, either through rental income, future resale (known commonly as flipping) or both. Whether a long term commitment or a short-term project, the type of home may vary—single-family, townhome, condo, or multi-unit.
For those interested in buying an investment property, PennyMac offers loans to fit unique investor needs. As an option, you may be able to use your current home equity to finance buying an additional property. Give us a call to see what your options are or apply online.
Why Property Investment?
Investing in a property or multiple properties can have its perks. While most people look at rental investments initially for the passive income, there’s also the appreciation to look forward to in the long-term. In addition to monthly cash flow, there are also many tax benefits such as depreciation and a lower tax-rate for long-term profits.**Consult your tax advisor for more information and further eligibility requirements.
Who Is Eligible for an Investment Property Loan?
While conventional loans are structured to make the loan experience simple for the borrower, investment loans require strong financial standing and healthy cash reserves.
For an investment loan, a down payment is a must. For a single family home, though it can be as little as a 15% down payment is required, but on a 2 - 4 unit property, it is as low as 25% down. If you’re already in the property management game, you know that rental income can help you qualify, based upon the current rental market value.
Qualifying for an investment loan generally requires:
- Good credit – the minimum FICO for investment loans with PennyMac should be in a good or an excellent score range, although depending on the loan type and terms, it may differ for your unique situation.
- Cash reserves – at minimum it is best to have six months of cash reserves on hand, in addition to closing costs. However, there are different requirements based on your unique situation-- number of properties, aggregate unpaid balance, etc.
- Minimum down payment can be as low as 15%– although typically about 20% is the minimum down payment required to eliminate the need for mortgage insurance
- Debt-to-income – DTI, or the percentage of your income paid out to debts should be no more than 50%.
- Proof of income – steady income must be shown. For the typical employee, this generally means providing pay stubs and W2s, while self-employed borrowers may also be required to provide two years of tax returns.
What Types of Loan Options Are Available to Me?
PennyMac offers a number of different loans for investment properties, from fixed rate loans to adjustable with a variety of term lengths. It is a good idea to first decide on a plan for your investment property. Do you want to renovate and sell quickly? Rent it for a passive income source? Something else?
What you do with the property will help determine what type of loan product may be suited to your needs. If your plan is to buy and rent the property, it may be best to choose a conventional mortgage.
If the intent is to use your property as a rental, you can calculate your expected income and then choose what term works best for you, from a 10-year to a 30-year. Just be sure that you can cover the payment if your property is vacant for a period of time. Talk to a loan officer to see what options are available for you.See all loan options
Popular Investment Property Types
- Invest in a long-term asset– remodel and flip for a profit or use as a source of rental income.
- A down payment as low as 15% or higher is required
- Can provide additional income
- State of the economy
- Housing Inventory
- Maintenance and operating costs
- Have a go-to relaxation spot or a second space
- Over time the property should appreciate
- Only requires as low as 10% down.
- Ability to enjoy a second living space/vacation spot anytime
- Could rent out to provide passive income
- Smaller upfront investment
- Annual upkeep and maintenance costs and time
- Will not provide income if vacant or choose not to rent
- Is the location ideal for other vacation renters
- To invest in a long term asset
- Additional income from tenants
- One loan - multiple units
- Can be owner-occupied, with the other units generating sufficient income to cover all associated obligations.
- Larger down-payment required when compared to other property types
- Maintenance and operating costs
- Vacant units will have large impact on cash flow
Frequently Asked Investment Financing Questions
What types of investment properties are there?
Almost any home can be an investment property. PennyMac offers investment loans for single-family homes, townhomes, condos, or multi-units (up to 4 units ).
What is the difference between an income-producing and a non-income-producing real estate investment?
Almost any piece of property can be income producing, if someone chooses to rent or lease it. The most common types of income-producing real estate include offices, retails spaces, industrial buildings, and leased residential homes. Each of these would be considered an investment because they are producing income for the owner. The owner can use the income generated by the tenant to help cover the costs of the property, including any mortgage payment for that property.
Non-income-producing real estate investments include the home you currently live in, or second homes that are not used as rentals. Because rent is not received on these properties, all the equity earned is through capital appreciation or through the pay down of any debt attached to the property. The owner must have sufficient income to cover any obligation associated with that property because there is no tenant to provide an income stream.
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