Investment Mortgages in Texas

If you’re interested in making money in the real estate field, then you may want to know about investment mortgages. Just like you have a mortgage on your home, you can get a mortgage on an investment property as well.

An investment property is defined as real estate that is bought with the sole purpose of generating income. Many people earn that money through rental income, although you could also just let the property sit and earn money through appreciation. To buy an investment property, you could pool funds with other investors. If you would rather purchase the property on your own but don’t have sufficient funds, an investment mortgage can help.

An investment mortgage can help you buy a home or apartment complex. While it is somewhat similar to a traditional mortgage, there are some crucial differences and some considerations you should take into account before you apply for one. The Empower Group can answer your questions about Texas investment mortgages.

How Do Investment Mortgages Work?

Investment mortgages work the same way as regular mortgages, but there are stricter requirements. While you may not have needed a down payment for your home, you will need one for an investment mortgage. That’s because there are more risks involved, so lenders want to make sure you are well-qualified. For a one-unit rental property, you will need at least a 620 credit score as well as 15% down. For a $400,000 unit, that’s $60,000. For a property with 2-4 units, expect to put down 25%. For a $400,000 unit, that would be $100,000.

Like a regular mortgage, you’ll need to provide some financial information. This will include two years of tax returns and proof of income (W-2s, 1099s, etc.) as well as two months of bank statements. The lender wants proof that you have enough money to make payments.

Pros and Cons of Investment Mortgages

When compared to conventional mortgages, investment mortgages have a couple of advantages. The best part is that you’re not using your home as collateral. Therefore, if you do happen to default, you wouldn’t lose your primary residence. However, this also comes as a risk for the lender. Because your home isn’t at risk, you may be more likely to walk away from your investment property if your finances change and you can no longer afford the payments.

Another advantage is that you can sometimes use your projected rental income to qualify for an investment mortgage. You can also have more than one investment mortgage at a time.

There are some downsides, though. You’ll need more cash upfront—expect to have at least 25%, plus closing costs. You might also be required to have cash reserves to pay 4-8 months’ worth of mortgage payments, insurance, taxes, and other fees. 

Also keep in mind that interest rates are typically higher. You’ll need high credit scores to secure the lowest rate. A 620 score is the bare minimum.

Considerations

Besides the pros and cons, there are some other things to consider with a Texas investment mortgage:

• Housing market trends. Obviously, you don’t want to buy a property in an area that’s going to see declines in value. Do some research and look at housing market indicators in various cities. A rental property is a huge investment, so make sure you choose the right one in the right neighborhood.
• Property taxes. Don’t forget about the property taxes. These can amount to several thousand dollars or more per year. Keep in mind that the more you pay for the investment property, the more you’ll pay in property taxes. 
• Pre-approval. A pre-approval can help you save time as you look for rental properties. With a pre-approval, you can find out how much home you can afford so you don’t have to waste your time getting disqualified down the road. This will require your financial information, such as income and assets, so the lender can provide a solution that fits your needs.
• Partnership. A partnership is a good idea if you like the idea of having someone help split costs and maintenance. On the flip side, though, you’ll also have to split any profits with a partner. Plus, if anything goes wrong, you’ll have to share liability with your partner. If you do want a partner, choose someone you can trust.

Contact Us Today

As the saying goes, it takes money to make money. That’s where Texas investment mortgages come in. With one of these loans, you can buy a home or apartment complex to create rental income. Managing investment properties can be costly and time-consuming, though. Are you ready for this? If so, contact The Empower Group today to learn more or start the application process.