How do I secure financing for a rental property?
I’ve been considering investing in a second home to let out, and have my eye on a particular property which is on the market at a very reasonable price. I’d really like to purchase it before it gets snapped up by someone else.
I’m 51 years old and my own mortgage has been paid off. I’ve got a fair amount in savings, but the majority of my cash is currently tied up in other investments, so I can’t afford to purchase the property outright at this time.
I would really appreciate a bit of advice surrounding how to get the financing for a rental property so I can put in an offer as soon as possible. If all goes well, I may also look to expand my portfolio later on down the line.
What rental property financing options are available to me, which would you most recommend, and what are the best rental finance companies to approach?
Thanks in advance,
Thanks for getting in touch, I’m more than happy to help!
There are several different strategies for financing a second home for rental purposes which may be suitable for you.
The most common option is to take out a buy-to-let (BTL) mortgage. These are usually offered on an interest-only basis, with the capital being repaid at the end of the term from the sale of the property - hopefully leaving you with a profit.
You mentioned that you have a fair amount of cash savings, which is a positive sign. The majority of BTL lenders request a minimum deposit of 15%. However, if you can afford to pay a higher deposit you’re likely to receive more competitive interest rates.
Another option to consider is a secured loan, which allows you to borrow large sums of money using your home or other high-value asset as collateral. Secured loans are typically lent on top of a main mortgage (the “first charge”), which is why they’re also referred to as “second charge” mortgages.
While secured loans pose far less risk to lenders, which means you’re likely to be offered far more competitive rates than you would get with an unsecured loan, as your current property is mortgage free, taking out a secured loan would not be an option for you.
Another financing option for a rental house is to purchase the property outright. You say your cash is currently restricted, but if this is your preferred choice,, you could consider a large bridging loan.
This short-term solution could give you time to withdraw the necessary funds you don’t currently have access to. This might be a good option if you need to close the deal quickly, however, this type of loan often comes with high interest rates, and usually requires a minimum of 75% loan to value (LTV) deposit. You’ll also need an exit strategy for the loan and this would usually be a remortgage, but in your case you could use your savings/investments should you choose to.
You also said you’d consider expanding your property portfolio in the future. There’s no limit on how many rental properties you can own, provided you’re able to finance them.
While some lenders will restrict the number of BTL mortgages you can have with them, or limit the total amount they’ll allow you to borrow. It’s all very much a case-by-case basis, so it’s advisable to speak to an experienced BTL mortgage broker.
Hopefully I’ve provided you with one or more solutions to your questions, but if you’d like to discuss financing rental properties in greater depth, call 0808 189 2301 or submit an enquiry online.
The whole-of-market brokers we work with can discuss your circumstances with you in more detail, and suggest the most appropriate rental finance companies or independent lenders to suit your needs.
Many thanks for getting in touch,
Information correct at time of writing, July 2019.
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