Planning on purchasing a rental property and need to secure financing? If so, acquiring a mortgage will be different for this property than when you purchased your primary home. Here is what you need to know about purchasing a property specifically for making rental income.

Have A Big Down Payment Ready

What makes a loan for a rental property different from your current home is the size of the down payment. It is common for mortgage lenders to only approve mortgages when you have a 20% down payment on the home. However, taking on a second property is more of a risk than owning a single home, and the lender is going to expect a bigger down payment because of it. If you don't have enough cash saved up for that down payment, you'll either need to wait longer to build your savings or purchase a cheaper property.

Get A Home Equity Line of Credit

Do you currently have a bit of equity in your current home? You can actually use that equity to help purchase your rental property. This is known as a home equity line of credit, or HELOC. If you need that bigger down payment, you can take out a HELOC to get the cash you need from your home. However, this won't work if you still owe money on your primary residence.

Ask For Seller Financing

It is possible to come up with an arrangement to purchase the property through seller financing. This is when you do not go through a traditional mortgage lender, but use the seller for your financing. The process works just like getting a mortgage on a home by creating a settlement agreement and going through the normal closing process. This allows the seller to make money based on the interest rate and the total length of the loan. A seller may want to do this because they may not need all the cash from the sale of the home right away. 

Use A Hard Money Lender

A hard money lender can give you the cash that you need and might be more willing to work with you if you are using the property for rental income. They are not just going to give you the money for the rental property, but look at your plan for how much you can make from rental income and base their decision off of that. Interest rates may be higher with a hard money lender, but they may be more willing to work with you. 

Contact a loan service for more information regarding rental property loans.