Rental property investing can be an effective way to build long-term wealth. However purchasing investment properties requires a significant amount of capital upfront. This is why utilizing rental property loans is commonly used as a solution to acquire real estate assets. One of the most popular loan terms for rental properties is the 30-year fixed rate mortgage.
In this comprehensive guide, we will walk through everything real estate investors need to know about 30-year rental property loans.
Overview of 30-Year Rental Property Loans
A 30-year rental property loan is a mortgage specifically designed for financing investment properties, with a repayment term of 30 years. Just like a traditional 30-year mortgage for a primary residence, the interest rate and monthly principal and interest payment on a 30-year rental property loan is fixed for the entire term.
30-year rental loans are offered by banks, credit unions, mortgage lenders, and private money lenders. While interest rates are usually slightly higher compared to a primary home, a 30-year term helps keep payments affordable on a monthly basis.
The longer repayment period allows investors’ rental income to cover more of the principal over time through the power of amortization 30-year rental loans can be used to finance single-family rentals, small multi-family properties, condos, townhomes, and even mixed-use residential/commercial buildings.
Pros and Cons of 30-Year Rental Property Loans
There are many benefits that come with choosing a 30-year rental property loan, but also some potential drawbacks to consider.
Pros
- Fixed monthly payments make budgeting easy
- Lower monthly payments free up cash flow
- Interest rates are usually very competitive
- Extended term builds equity faster through amortization
- Interest expense is tax deductible
Cons
- No option to pay off loan early without penalty
- Missed payments hurt credit score
- Loan balance doesn’t decrease quickly
- Total interest paid over life of loan is higher
What are the Requirements for a 30-Year Rental Property Loan?
While every lender has their own specific eligibility standards. there are some general requirements to qualify for a 30-year rental property mortgage
- Minimum credit score of 620 or higher
- Low debt-to-income (DTI) ratio, usually below 45%
- At least 25% down payment
- Sufficient income and cash reserves
- Previous experience owning rental property may be required
- No more than 10 financed properties
Meeting these requirements demonstrates to the lender you can manage the ongoing costs and responsibilities of being a landlord.
What is the Interest Rate on a 30-Year Rental Property Loan?
Interest rates on 30-year rental property loans are typically 0.25% – 1.5% higher than owner-occupied primary residence loans. This risk premium compensates the lender for the increased chance of default on an investment property.
That being said, a 30-year rental loan will almost always have a lower rate than a commercial loan or private money loan. Excellent credit and substantial down payment will help secure the most competitive interest rates.
As of March 2023, average 30-year fixed rate rental property loans are between 5.5% – 7%. Always compare rates from multiple lender sources.
What is the Down Payment on a 30-Year Rental Property Loan?
Down payment requirements are higher for rental property loans compared to primary home mortgages to mitigate risk. Most lenders want at least a 25% down payment from the investor on a 30-year rental loan.
With a larger down payment, the loan-to-value (LTV) ratio is lower, making it more likely the borrower won’t default. Some banks may accept a 20% down payment if you have excellent credit and income.
The down payment for a 30-year rental loan can come from multiple sources – savings, profits from selling assets, primary home equity, or business funds.
How Much Cash Flow Can I Get from a 30-Year Rental Property Loan?
A 30-year fixed rate rental property loan can provide steady cash flow when used to finance the right investment property. With a longer amortization, more of the payment goes to interest in the early years, reducing expenses.
Conduct thorough due diligence to estimate realistic income and expenses. Property value, purchase price, interest rate, taxes, vacancy rate, and property management fees all impact cash flow. Utilize the 1% rule as an initial screening metric.
A $200,000 rental property with a $160,000 30-year loan at 6% should produce monthly gross rents over $2,000 to potentially cash flow.
Tips for Getting the Best 30-Year Rental Property Loan
Follow these tips to find and secure the ideal 30-year rental property mortgage loan:
- Shop mortgage rates from multiple lenders and brokers
- Seek out lenders who specialize in financing investment properties
- Look for lenders who offer discounts on multiple loans
- Pay points to buy down the interest rate if property cash flows well
- Negotiate lower origination fees and closing costs
- Apply with a co-signer if you don’t meet requirements
- Offer a larger down payment to improve loan terms
Alternatives to 30-Year Rental Property Loans
If a 30-year rental loan doesn’t fit your investing objectives, here are a few alternatives to consider:
- 15-Year Loan – Higher monthly payment but build equity faster
- Interest-Only Loan – Lower payments but no equity built initially
- ARM Loan – Lower initial rate but payments could rise over time
- Hard Money Loan – Fast financing but very high rates and fees
- Private Lenders – Customized loans but usually high down payments
- All Cash – No loan required but need substantial capital
No matter what type of loan you choose, be sure to evaluate multiple financing options to find the best fit based on your investing style, deal requirements, and current financial situation.
Final Thoughts on 30-Year Rental Property Loans
For real estate investors interested in long-term buy and hold strategies, the stability and affordability of a 30-year fixed rate rental property loan can be an excellent choice.
Take the time to carefully assess potential investment properties, utilize lending sources familiar with the rental market, and accurately estimate costs and income. With proper underwriting and planning, 30-year rental loans offer an efficient way to expand your real estate portfolio over time.
Types of Investment Property Loans
Here are the different types of Texas rental loan programs we specialize in.
- Minimum loan amount: $75k
- Maximum loan amount: $2m
- Purchase/refinance LTV: Max 80%
- Cash out refinance LTV: Max 75%
- Terms: 5/1 ARM, 7/1 ARM, 30-year fixed rates & interest only
- Property types: single family home, condo, 2-4 unit
- Minimum loan amount: $75k
- 1.5+ DSCR
- LTV: Maximum 75%
- Terms: 5/1 ARM, 7/1 ARM, 30-year fixed rates & interest only
- Short-term vacation rentals
- Listed on AirBNB, VRBO, etc
- DSCR rental loans
- Consolidate 5+ rental properties
- 1 monthly payment
- Minimum loan amount: $500k
- No maximum loan amount
- LTV: Maximum 75%
- 10 or 30-year fixed rates
- Interest-only options
- Grow your rental portfolio
Is a Texas rental property a good investment?
Texas has a thriving economy, landlord-friendly laws, affordable rental properties, no state income tax and a population of over 30,029,572 people. This makes it an ideal state for real estate investors.
When should you get a 15 Year Mortgage on an Investment Property. Or is 30 Years always right answer
FAQ
Can you get a 30-year mortgage on a rental property?
What is the 30-year mortgage rate for investment property?
|
Product
|
Interest Rate
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APR
|
|
30-Year Fixed Rate
|
7.12%
|
7.16%
|
|
15-Year Fixed Rate
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6.71%
|
6.78%
|
|
5-1 ARM
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6.72%
|
7.83%
|
|
30-Year Fixed Rate FHA
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7.12%
|
7.16%
|
What is the 2% rule in real estate?
What is the 50% rule in real estate?
What are the different types of rental property loans?
Conventional loans for rental properties are the most common type of rental property loan. They are not insured or guaranteed by the government, and are available in a variety of terms, with the most common being 30-year and 15-year fixed-rate mortgages and also a variety of adjustable-rate mortgage (ARM) products available.
Can a 30-year loan be a good investment property?
A higher interest rate or shorter loan term will mean higher monthly payments. A 30-year loan on your investment property will generally mean lower monthly payments but more interest paid over the life of the loan. Can I get a mortgage for an investment property?
What is a rental property loan?
These loans can be used to finance the purchase of virtually any type of rental properties such as commercial and residential properties. Loan terms for rental property mortgages can range anywhere from 1 to 30 years depending on the property type.
How long does a rental property mortgage last?
Loan terms for rental property mortgages can range anywhere from 1 to 30 years depending on the property type. The interest rate on a rental property mortgage is typically higher than a traditional mortgage because the lender is taking on a higher level of risk.
Which mortgage is best for a new rental property investor?
Conventional mortgages often provide the best combination of low interest rates and longer loan terms. FHA (Federal Housing Administration) loans are a popular choice for new rental real estate investors. FHA loans have lower credit score requirements and a significantly lower down payment requirement – currently just a 3.5%.
What is the interest rate on a rental property mortgage?
The interest rate on a rental property mortgage is typically higher than a traditional mortgage because the lender is taking on a higher level of risk. To offset that risk, larger down payments are usually required – 20% to 40% for a rental property.