What is a Rental Loan?
If you’re looking for a way to afford a home or are stuck in the red and looking to make a little extra cash, a rental loan might be right up your alley. There are many different terms to know when it comes to obtaining one, but the basic idea is that you can get an advance against your future rent payments.
You can get one from any lender, whether through a bank or a non-bank company. An advance provides the loan against your future rent payments. Essentially, you’re borrowing money from yourself to buy a home.
Types of Rental Loans
There are several types of these loans out there that could help you get the home you need, whether for yourself or investment purposes.
Here are some of the most common types:
1. Primary Rental Option
This loan is a mortgage loan that is originated to qualify a borrower for a first home. It would typically be used to purchase an existing home instead of purchasing a new construction home.
Property investors use primary rental loans to purchase investment properties that they then rent out to earn extra income on their money.
2. Secondary Rental Loans
Property investors typically use this option to buy investment properties instead of primary rental loans. This is common because it helps the property investor avoid paying private mortgage insurance (PMI) required on a primary residence. It also allows the borrower to have no down payment and no private mortgage insurance required when purchasing an investment property. They’re also commonly used when buying a vacation home or properties outside the state where the property investor resides.
3. Bridge Loans
A bridge loan is a type of mortgage, usually offered by a private lender, to cover the gap between selling a home and buying another one. Bridge loans are typically shorter than other mortgages, with repayment periods lasting six months to two years.
Applying for Rental Loans
These loans are also different because they generally don’t require any down payment, making it easier for renters strapped for cash. Unfortunately, this is also why interest rates tend to be higher because lenders want to make sure their investment is protected. Ensure that any lender you apply to is reputable and knows the market well. Reading reviews online can help with this, and check out their website and social media channels to see how they present themselves publicly.