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How to Qualify for a Rental House Loan

written by: wendyppp•edited by: Jean Scheid•updated: 8/25/2010

How do you qualify to buy a rental house and get a loan? These questions perplex many first time real estate investors. But we're going to give you the information you need to decide if investing in real estate is right for you.

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    House by English Bay Despite the recent squeeze in the housing market, rental properties are still some of the best investment opportunities around. However, as a result of the mortgage crisis, obtaining a loan for rental property can be more difficult given that there are tighter regulations involved in mortgage lending now. Difficult isn’t synonymous with impossible, however. So you might be asking “how do you qualify to buy a rental house?” Well read on, because we’re about to tell you.

    In a lot of ways you qualify to buy a rental house the same way you qualify to buy the home your plan to live in. You need to have verification of your income in the form of a W-2 or LES if you are in the military. You’ll also need to have your income tax returns for the last several years. You mortgage broker can tell you how many, but most of them require at least 3 years. You’ll also need to have the information for all of your expenses, including mortgage, utilities, vehicle payments, credit cards, and perhaps other needed financial information.

    Image Credit: http://www.englishbay.com/real-estate/index.html

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    Specialty Lenders

    When you qualify to buy a rental house, you have some options to consider. It can be difficult to get mortgage lenders to lend money for investment properties, especially to those who are self employed or can’t verify all of their income. But that doesn’t mean that real estate investment is out of the question for you. There are specific lenders that specialize in financing investment properties. These loans will typically require a larger down payment, somewhere between 20 and 40 percent, although it is possible to find loan with as little as 10 percent down with exceptionally good credit. Lenders expect to be compensated for the higher risk associated with rental properties. Typically, owners default more often on rental properties than their primary residences.

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    Seller Financing

    Another great option to qualify to buy a rental house is seller financing. Often if you are straightforward with the seller, they will carry the financing themselves. If the seller is willing to carry the financing then you are also in a better position to negotiate terms since you are negotiating with a single person instead of the “powers that be” at the bank.

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    Multi-Family Units

    If you are looking at buying a duplex or a multi-family housing unit, another great option when you are trying to qualify to by a rental house is living in one of the units you purchase. The financing options for multiple units are slightly different than for a single family home, however. By living in one of the units, it qualifies as your primary residence and primary residences are always easier to finance. But the best part, is that it allows you to use a percentage of the rent you will receive as income, typically 75 percent. So if you negotiate a rental amount that is at least 25 percent higher than your mortgage, you’ll be in even better shape from an income standpoint and that could very well put you into your investment property. If you are persistent with seeking lenders or owner financing, it won't be hard to figure out how do you qualify to buy a rental house!

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    Resources

    1. Rate Empire - http://www.rateempire.com/loan/investmentproperty.html
    2. MSN Money Central - http://articles.moneycentral.msn.com/Investing/RealEstate/DoYouHaveWhatItTakesToBeALandlord.aspx