All About Buy-to-Let Mortgages
Property is one of the best ways to make money on investment today. Many people purchase homes for the sole purpose of renting them out to other people. If you’re planning on doing this, you should consider a buy-to-let mortgage. They are specifically designed for this situation. The number of these types of mortgages on the market isn’t as big as it used to be, but there are still plenty of them available.
Buy-to-let mortgages are very advisable right now. They are actually one of the best ways to get a good return on your investment. One of the ideal aspects of the real estate market is that homes almost always increase in value over time. Rent will go up because of this, but your mortgage stays the same.
Another reason that renting out property is so valuable as an investment protocol is that more people are renting instead of buying houses. When the economy is down, it becomes much harder to get the credit or the down payment needed to purchase a home. Right now, there are more renters than ever in America. Buy-to-Let mortgages are a very attractive investment right now.
Choose the right mortgage
When purchasing a new property, the style of mortgage is one of the most important considerations. The mortgage you choose has a resounding impact on your financial relationship with the property as time goes on. The quicker you pay off the mortgage, the quicker you can make money off the rent money from your tenants. The best choice is a mortgage that is designed specifically for a rent-to-own home.
Differences from a standard loan
Buy-to-Let mortgages are similar to standard home loans in many ways. There are some stark contrasts between the two, though. the most noticeable difference is that the interest rates is higher on a buy-to-let mortgage. They also typically have a shorter time period. It is a good deal for someone who wants to get rid of their mortgage quick and start making pure profit off of rental costs.
The reason the time is shorter in many cases is because of the large down payment required to acquire the loan. On a standard loan, the initial down payment is usually 20%. Buy-to-Let mortgages usually require a 25% down payment. The best deals for the buyer come when they spend 40% on the down payment or more.
How to get one
There are a few different factors that help the bank determine if the loan type is right for you. The most important factor is the estimated rental income that it will bring in. The bank will first look into your personal income to make sure that you can afford the loan. They will then estimate the future value of the rent payments that will be brought in.
The magic number to be approved for a buy-to-let mortgage is 125. This is because if they think the property will bring in 125% more than the cost of the mortgage on an annual basis, they will approve the loan. This means that it will probably be a good investment for the borrower too. It wouldn’t be wise to purchase a rental property that won’t cover the cost of the mortgage in the first place. If your mortgage cost you 20,000 pounds a year your rental income should be at least £25,000.
These may seem like strict conditions, but they are that way for a reason. This loan type goes into default more than any other type of loan. A residential loan is much easier to acquire.
Rental and personal income aren’t the only criteria that must be met to be approved for this loan. There are some other minimum requirements. The borrower must be at least 25 years old. You also must make at least 25,000 per year. Banks usually cap the number of loans you are allowed to have out at one time. Most borrowers are also only allowed to have 3 loans at any given time.
If you are interested in a Buy-to-Let loan you should look into Finance.co.uk. They are a free and independent service that lets individuals compare different loans to see which one is the right fit for them.
The only thing that you have to do once you have the loan is to find the right tenant. It is important to vet tenants as much as possible. If you don’t get good renters, they won’t keep up with their repayments and you could default on your loan. This will give the banks the right to repossess your home and destroy your credit in the future.