If you’re thinking about buying a property to rent out, finding a mortgage for your new project might seem daunting. However, non-qualified mortgage (non-QM) loans for investment properties exist, and they may be more accessible than you think.
Let’s scrutinize a few myths about financing an investment property and examine the realities behind them:
Myth #1: You need to personally qualify for an investment property loan.
Debunk: Certain loan programs for real estate investors, such as Debt Service Coverage Ratio (DSCR) loans for real estate investors, focus on property cash flow rather than personal income. This means these loans use rental income to determine whether you qualify, making it easier for investors to build their portfolios without needing traditional income documentation. Newrez’s DSCR product SmartVest product fits this criteria.
Bank statement loans for real estate investors offer another way to qualify. Newrez’s bank statement product SmartSelf is designed for self-employed borrowers who would prefer to use personal or business bank statements to qualify for a loan, and accommodates higher debt-to-income (DTI) ratios than traditional mortgages to accommodate entrepreneurs.
Myth #2: You can’t get financing if you have credit challenges or a recent foreclosure.
Debunk: Credit setbacks don’t have to derail your investment plans. Loan programs like Newrez’s full doc product SmartEdge offer flexibility in the face of derogatory credit events such as bankruptcy or foreclosure. Instead of waiting years to re-enter the market, investors with less-than-perfect credit may be able to secure financing sooner than many traditional loan options allow.
Myth #3: Investment property loans require a huge down payment.
Debunk: Qualified borrowers may be able to secure financing with a down payment for an investment property mortgage as low as 15%. This reduces the initial capital barrier and helps investors scale their portfolios more efficiently.
Myth #4: Financing is impossible for non-traditional property types like condotels or short-term rentals.
Debunk: Some lenders offer non-QM loans for investment properties that include financing for non-warrantable condos, condotels, and short-term rental properties. These specialized loan options are ideal for investors who plan to list their properties on Airbnb® or Vrbo® or other short-term rental marketplaces.
Myth #5: You can’t get cash out of your investment properties.
Debunk: Investors can pull cash out of their investment property’s equity via cash-out refinancing.† Whether the money is needed for renovations, debt consolidation, or expanding a real estate portfolio, cash-out refinancing could broaden financial possibilities for qualified investors.
Myth #6: You can only finance a limited number of properties.
Debunk: Newrez’s loan programs allow investors to finance up to eight properties – even if they already have up to 20 financed properties with other lenders. This helps both small and large-scale investors grow their portfolios efficiently.
Myth #7: You have to be a U.S. citizen to get a mortgage as a real estate investor.
Debunk: Newrez can provide loans to permanent residents and foreign nationals, so long as they meet qualifying criteria. Loans like this may not require personal income.
The Bottom Line
Whether you’re a brand-new or experienced real estate investor, you’ve got mortgage options available to explore that can get you higher loan limits than traditional mortgages. Even if you’ve experienced a detrimental credit event, you may still be able to access a tailored mortgage.
Curious to learn more? Reach out to one of our mortgage experts.
Airbnb® is a registered trademark of Airbnb, Inc. Vrbo® is a registered trademark of Homeaway.com, Inc. None of the above-mentioned companies are affiliated with Newrez, LLC.
