Lenders consider investment property a riskier proposition because owners have less to lose by walking away from an unaffordable investment than from leaving a home they live in. There's a greater risk the owner could walk away should the property sit vacant for any length of time because an owner who relies on rental income to make the monthly payment can quickly run into trouble. In addition, a renter may not take care of the property as well as an owner who lives in it—eroding the property's value.
If you are considering purchasing an investment property or second home, here are a few things you can do to minimize the interest rate on the mortgage:
- Make sure your credit is in the best possible shape before loan application.
- Show the lender you can afford the payments without relying on rental income—or that you at least have enough cash set aside to weather several months of vacancy.
- Make a sizeable down payment—more than the 20 - 25% standard if possible. The more you have invested in the property, the less risky the loan from the lender's standpoint.
- Demonstrate your ability to rent out the property by showing low local vacancy rates and proof that your rental amount jibes with other rental properties in the area. Also let the lender know if a renter is already lined up for the property.
Thank you for reading my blog and if there is anything else I can help you with please don't hesitate to contact me,
A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate
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