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Understanding Real Estate Investment Loans

5:16 am ET

October 30, 2014 October 30, 2014

While savvy real estate investors can parlay one transaction into another and gather enough funds to pay cash for their homes, real estate moguls-in-training need to finance their first purchase.

In some ways, a mortgage for a real estate investment is similar to other home loans, but lenders distinguish loan programs and qualifications for owner-occupied homes or investment properties.

Real estate investment loans, which offer financing for borrowers who intend to buy-and-sell or “flip” a property, are considered riskier than mortgages for owner-occupants.

Lenders  know if a borrower experiences financial difficulty, he’s more likely to prioritize the payments on his own home and let the investment property go into default.

The added risk associated with investment-property loans means lenders expect borrowers to have better credit, a lower debt-to-income ratio and make a larger down payment in order to qualify for an investment loan.

Most lenders require a down payment of at least 20% on an investment property, and some require a down payment of 25%.

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