Investing in real estate is a little challenging. It requires a lot of money that you may be unable to raise all by yourself. However, a buy-to-let loan is here for your aid.
A buy-to-let loan allows you to purchase property that you rent out to tenants rather than living in it as the owner. These types of mortgages usually have higher fees and interest rates compared to standard residential mortgages. Also, the lending criteria for this type of loan are entirely different from other loans. Therefore, you must ensure to have all your calculations right before getting a buy-to-let loan.
This article will help you understand in-depth what you need to be legitimate for the credit. It will also cover how to and where to get the loan. However, even with all the details in the article, it's essential to consult a financial consultant before making massive investments.
Who Can Get a Buy-to-Let Mortgage?
Everyone can qualify to get a buy-to-let mortgage. However, the figures will vary based on your target tenants, credit score, and several other financial requirements. Unlike getting a residential mortgage, with buy-to-let, you will have to pay a slightly higher interest rate. With a buy-to-let mortgage, you must be able to at least deposit a significant portion of the purchase price for you to qualify for the mortgage. Your credit score will affect the amount you get either positively or negatively. Therefore, you must have a clear and competitive score for a period of at least 12-months. Additionally, before you consider getting a buy-to-let loan, you must already have a home where you live. This will enhance your chances of getting the mortgage, rather than attempting to get one while you are renting.
How Do Buy-to-Let Loans Work?
A buy-to-let mortgage works almost the same as the residential mortgage does. However, it has some slight differences that make it exceptional from the others.
Getting a residential mortgage focuses on your income. With a buy-to-let, the more important aspect is the expected rent from tenants. The higher the potential rent, the more likely the mortgage can be worked out. With this loan, you will have to repay the interest instead of the actual capital. However, if you feel the need of selling the property, you will have to ensure you pay the money in whole. Additionally, when you use a buy-to-let mortgage, you must have discipline with your savings. While you are only responsible for interest as a standard payment, you will still need to pay back the capital by the end of the mortgage term.
If you only use a standard residential mortgage and rent the property out, rather than living in it, the mortgage is automatically considered a buy-to-let mortgage. According to mortgage laws, if you are found in such a situation, you risk a higher chance of attracting. Therefore, before you invest in a property, it's essential for you to do in-depth research. Ensure you have all the details in place for you to make the right decision.
It is important to do proper calculations taking into account the amount you intend to borrow and how much rent will be earned. It is best to work with a certified realtor to ensure your investment is worthwhile in the long run.
How Much Can You Borrow With a Buy-to-Let Mortgage?
The amount you can borrow is directly related to the income you receive from the rent. With most lenders, your mortgage payment should not exceed 30% of a person’s income in the payment period. Therefore, for you to qualify for a higher loan, it's important you choose your location and rental space carefully. Your area of choice will determine the kind of tenants you attract in your property hence dictate the rent income.
For you to have an overview of how much you can earn from the property, it's important to speak to local letting agents. These agents can give you specific details about that particular area, which will guide you on how much you can charge. You could also do an online investigation to determine how much similar properties earn in that particular area.
Another interesting factor that will affect the amount you get is your credit score. If you have an excellent rating, you stand a higher chance of getting a bigger loan. Also, some lenders will be interested in evaluating your net worth.
Where to Get a Buy-to-Let Mortgage
Buy-to-let loans are available in most prominent banks. There are also some lenders who specialize in giving buy-to-let mortgages. However, different lenders have different deals to offer.
It's essential for you to take your time before settling for a particular lender. Learn about their interest rates and other charges that are included in the mortgage. Also, be aware of the mortgage period and the repayment plans.
To avoid making a mistake, it’s good idea to find a reliable mortgage broker to help you with choosing a lender and mortgage plan. A broker will work for you in finding the right deal that will fit your financial plans. Mortgage brokers are great assets that work for you, not the bank.
Additionally, give yourself sufficient time to evaluate one lender over the others. Don't be in a hurry to get a mortgage. Taking your time can help avoid unexpected mistakes. This is a long-term investment, if you make a mistake at the beginning, you could face consequences for a considerable time.
Ensure your lender provides you with all the details before signing any legal papers. If possible, get a financial consultant as a third party to help you with your investment. Lastly, pick a mortgage plan that will fit your financial goals and avoid stretching your account to the limits.