Investing in property is an excellent way to earn long-term profits, and investment property home loans are determined by your budget and the direction of your property search.
It is a typical notion that asking for investment property loans is a piece of cake, as you can pay the scheduled payments by leasing the property.
However, most investors have strict rules and regulations for providing these loans. Hence why we’ve curated this guide on what to know when applying for investment property home loans.
Some of the most crucial things to consider are the size of your loan, the strength of your loan application, the deposit size, and the reliability of the investor. If you’re learning how to become a property developer, understanding home loans is a good place to start.
What is an investment property home loan?
In order to finance their real estate investments, most investors get investment home loans. An investment property is one that provides property investors with a significant opportunity to profit. The down payment on a property can be increased with the help of an investment loan.
In addition, investors can use the funds from the investment home loan to make repairs and upgrades to the dwelling before renting it out, or to buy furnishings for the property in order to raise its resale price. An investment home loan makes buying an investment property financially possible.
Consider looking through our property finance section to learn more about this.
Why should you consider investing in property?
In addition to being considered a sign of authority and high stature, know how to start in property investment offers multiple financial benefits. Here are a few reasons you should consider an investment strategy to invest in a property and earn a maximum profit margin.
- Most property markets worldwide always remain profitable, regardless of the country’s economic situation. Also, Australia’s real estate market has seen a massive surge in the past decade. Hence, investing in property by taking investment home loans has become more lucrative.
- Property investment offers you a significant buffer against inflation. Your property’s value and rental income will increase at a high inflation rate.
- Investing in the property improves your financial situation, offering you capital appreciation (capital gains) and an increase in cash flow. You can increase the property’s market value using an investment loan. Also, you can improve your monthly investment income by renting the property.
- Rental income from property investment also comes in handy for home loan repayments.
However, it is crucial to remember that investment properties pose a higher financial risk than residential property loans when used for personal residence.
The reason behind this concern is if property investors lose money on their property investment for any reason, parting from the property not used for personal residence is easier than the one used to earn rental income.
Eligibility criteria for investment property home loans
One of the most crucial factors to consider when applying for investment property home loans are the eligibility requirements set by the money lenders. Also, it is advisable to check the money lender’s Australian credit license.
The general requirements for an investment property loan are as follows.
Good credit
Your credit score must be excellent or in a good range when applying for an investment property loan. Most lenders feel confident in lending money to people with good credit scores.
Simultaneously, money lenders offer feasible and convenient loan terms if you have good credit. With that said, most lenders offer high-interest rates on investment property loans.
Proof of income
Another critical thing that the money lender considers is your borrowing power. The more money you have in your bank, the higher your chances of getting an investment home loan. Hence, the money lenders ask for your proof of income to evaluate your financial situation.
Minimum down payment
Typically, the minimum down payment is 20% of the property value. However, some money lending companies may allow you to pay less than a 20% down payment. But in this case, you will need to pay lenders’ mortgage insurance.
Cash reserves
After paying the down payment and closing costs the property investor must have enough cash reserves (specified by the money lender). These money reserves improve your financial capability to get a loan offer.
Other eligibility requirements include a minimum percentage for the down payment and a debt-to-income (DTI) ratio. The amount of loan you receive also depends on the number of investment properties and the total property value.
Are you investing in the market for the first time?
If you are applying for a loan for your first investment property in the market, you can’t claim incentives offered by the property investors to the first-home buyers.
For instance, New South Wales offers an exemption from paying stamp duty concession to the first home buyers. Similarly, the Australian Capital Territory (ACT) launched a home buyer concession scheme in July 2019 for first-time buyers.
Is it your second investment property?
If you already own a property and are looking to invest a second time in the real estate market, you can use your first property’s value as leverage to get an investment property loan.
