Investing in rental properties can be a great way to build wealth and secure your financial future. However, financing the purchase of a rental property requires a different type of mortgage than a traditional owner-occupied home loan. If you’re looking to invest in rental properties, it’s important to understand non-owner occupied mortgage rates and how they can affect your bottom line.
What is a Non-Owner Occupied Mortgage?
A non-owner occupied mortgage is a type of mortgage loan used to finance the purchase of a property that will not be occupied by the borrower. Instead, the property will be rented out to tenants. Non-owner occupied mortgages are also known as investment properties or rental properties.
Why Are Non-Owner Occupied Mortgage Rates Higher?
Lenders view non-owner occupied properties as higher risk than owner-occupied homes. As a result, non-owner occupied mortgage rates are generally higher than rates for owner-occupied homes. This is because lenders assume that the borrower is less likely to default on the loan if they are living in the property themselves. Additionally, rental properties can be more difficult to sell in the event of a foreclosure, which is another reason why lenders charge higher rates for non-owner occupied mortgages.
Factors that Impact Non-Owner Occupied Mortgage Rates
There are several factors that can impact non-owner occupied mortgage rates, including:
- Credit Score: A borrower’s credit score will play a major role in determining their non-owner occupied mortgage rate. Lenders will look at the borrower’s credit history and credit score to assess their risk level and determine what interest rate to offer.
- Down Payment: A higher down payment can lead to a lower interest rate. Lenders view borrowers who make a larger down payment as lower risk, which can result in more favorable terms and interest rates.
- Property Type: The type of property being purchased can impact the non-owner occupied mortgage rate. For example, a multi-unit rental property may carry a higher interest rate than a single-unit rental property due to the added risk for the lender.
- Location: The location of the rental property can also play a role in determining the non-owner occupied mortgage rate. Properties in areas with strong rental demand and low vacancy rates may be viewed as less risky by lenders and result in lower interest rates.
Choosing the Right Non-Owner Occupied Mortgage
With so many options available, it can be overwhelming to choose the right non-owner occupied mortgage. However, it’s important to do your research and compare rates from multiple lenders to find the best deal for your investment property. Consider working with a financial advisor or mortgage broker who has experience with non-owner occupied mortgages and can help you navigate the process.
In conclusion, non-owner occupied mortgage rates are generally higher than rates for owner-occupied homes due to the added risk for the lender. However, there are several factors that can impact non-owner occupied mortgage rates, including credit score, down payment, property type, and location. By doing your research and comparing rates from multiple lenders , you can find the best non-owner occupied mortgage for your investment property and potentially save thousands of dollars over the life of the loan. Investing in rental properties can be a lucrative opportunity, but it’s important to understand the different mortgage options available and how they can affect your bottom line. Take the time to weigh your options and make an informed decision to ensure a successful investment in rental properties.
FAQ
How much higher are non-owner occupied mortgage rates?
A non-owner occupied or investment property’s mortgage usually has a 0% interest rate. 250% – 0. 500% more expensive than the rate on a home you own Additionally, non-owner occupied mortgage closing costs are typically more expensive, including the cost of the appraisal report.
Is non-owner occupied same as investment property?
Non-owner occupied mortgages, also referred to as investment property or rental mortgages, are designed for residential properties with one to four units. But it is particularly made for borrowers who do not plan to reside in the property.
What is the interest rate for investment property?
Investment property rates are usually at least 0. 5% to 0. 75% higher than standard rates. At today’s average rate of 5. 75% (5. Buyers can anticipate interest rates to start around 6 percent (or 767% APR) for a primary residence. 25% to 6. 5% (6. 267 – 6. 517% APR) for a single-unit investment property.
What is the difference between owner occupied and non-owner occupied?
When you apply for a mortgage, the occupancy status is determined. For instance, the mortgage is categorized as owner occupied if you plan to live in the property once your loan closes. A mortgage on a home where you don’t reside is referred to as a non-owner occupied mortgage.