Taking Out a Loan for Investment Properties Learn How
                     T A K I N G O U T A L O A N  
F O R I N V E S T M E N T
P R O P E R T I E S ? L E A R 
N  H O W
B Y L E V E L F I N A N C  I N 
G

Buying a house can be an attractive investment for everybody 
and  not just for a professional real estate investor, but for 
anyone  looking for an opportunity to earn passive income. Here 
are some  of the main benefits.
You can enjoy a predictable rental income stream.
Your property can appreciate over time, and you can resell it 
at  a higher price.
Real estate investments can make your portfolio 
more  diversified and less risk-oriented.
Managing your investment does not require a lot of 
work.  You can benefit from tax breaks or deductions.
The property can be used as collateral to obtain a loan.
F I R S T M O  R T G A G E O  N I N V E S T M E N T P R O  P E R T I E 
S
This is the most common loan people use when buying properties. It 
 can be used for both houses you plan to live in or as an investment 
 property loan. It’s usually repaid over a long period of time, which 
can  be as high as 30 years.
Several financial institutions and specialized lenders provide this 
type  of loan. A mortgage loan officer will usually assist you during 
the  application process.
First mortgages require a down payment. A large one would lower 
the  interest rate you pay on the mortgage with a positive effect on 
the  overall borrowing cost.
Finally, it’s wise to apply for a conventional mortgage when your 
credit  score is in good shape. If it’s below the low 600s, it’s a good 
idea to  take actions that improve your credit before applying for a 
mortgage.
The best conditions are usually available to borrowers whose 
credit  score is above the low 700s.
All these factors being equal, mortgage lenders offer different 
interest  rates to borrowers. Therefore, it’s advisable to search for 
different  lenders and compare their offerings to spot the most 
attractive ones.
Don’t overlook additional fees. Sometimes they’re hidden between 
the  terms and conditions and can significantly impact the total cost. 
Some  of these fees may be tied to your already existing loans. Ask 
your  mortgage loan officer for a detailed list of all the fees included 
in the  contract.
H O M E E Q U I T Y L O A N F O R I N V E S T M E N TP R O P E R T I E 
TShis type of loan lets you borrow a lump amount against the equity in 
your  home. It’s considered a second mortgage, as it allows you to 
borrow  against an existing property’s value. The loan can then be repaid 
at a fixed  interest rate in a period ranging from 5 to 30 years.
Based on data provided by Investopedia, most home equity loan 
providers  will lend you up to 80%  of your home’s current value. This 
percentage is  known as the combined loan-to-value ratio.
For example, if your current home’s value is $400,000 (and you have no  
current debt), you will be able to borrow up to $320,000. Of course, 
many  people have existing first and/or second mortgages on their 
current  properties.
Other factors, such as your current income and credit score, will  
also affect your eligibility, as well as the interest you have to pay 
on  the loan.
A home equity loan can be used to finance any type of purchase. 
 Therefore, it can also be used as an investment property loan,  
whether you want to resell the real estate after at a higher price 
or  generate long-term rental income. It can be the right move 
when:
you don’t have enough cash 
reserves  you don’t have time to 
save money
you have accumulated significant 
equity in your home
H E L O C F O R I N V E S T M E N T P R O P E R T I 
E S
Unlike home equity loans, a line of credit sets an amount of available  
cash that you can use at your discretion. You will then have to repay 
the  outstanding balance within a certain period of time, usually at a 
variable  interest rate.
Yet just as in a home equity loan, you will need to use a current 
property  as collateral to obtain it. Your collateral’s value also 
determines the  amount that you will be able to borrow.
In short, a HELOC is like a credit card backed by the value of a property 
 you own. After your line of credit has been approved and you have 
found  an investment property to buy, there are two available options.
You can use it to cover the down payment on a conventional  
mortgage (ideally, your HELOC provider will be the same as 
your  mortgage provider).
You can use your HELOC to finance the investment property 
in  cash (partially or totally).
Because of its variable interest rate, opening a HELOC to finance  
real estate investments can be a clever option if you foresee a  
general decrease in interest rates. It’s also a solution to consider if  
you plan to renovate your investment property to increase its value. 
 As opposed to borrowing a lump sum, opening a line of credit 
allows  you to decide more flexibly how much you will spend on 
home  remodeling.
T H A N K Y O  U
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