Mortgages: Buy to Let Property Information

From Enlightenme.com'

When researching mortgages, buy-to-let is a separate category from a standard mortgage loan. Buy-to-let mortgages are offered for investors to borrow money from banks and financial institutions with the intention of purchasing property to privately rent to tenants. These kinds of mortgages have been on the rise since the early 1990s in the UK and are quickly becoming a commonly-used method in the United States.

Initial Qualification for Mortgages, Buy to Let Properties

Lenders are able to disperse funds to clients in a number of different ways for a buy-to-let mortgage. First of all, the amount that an individual can borrow is usually based upon the rental value of the property. Most lenders wish to lend financial resources for rental properties that will yield a percentage of 120-150% of the repayment amount.

This commonly used qualification method is used to ensure that the individual will have a surplus in rental income to cover the costs of property maintenance and periods of time where portions of the property may not be rented to tenants. This protects lenders who issue mortgages, buy to let owners and investors. Occasionally, a background check may be initiated included pulling the buyer’s credit score, so it is often best for clients to operate under the guise of a private business to avoid poor credit conflicts.

Dispersed Funds

Many lenders will choose one of several different methods to disperse buy-to-let mortgage funds based on several criteria. For instance, some lenders will choose to offer mortgages that are based on three times the salary of the recipient as well as half the rental income.

There are other lenders that will opt to lend based on the deduction rule. This rule essentially states that the lender will only lend up to 3.5 times the recipient’s income minus a figure that represents the annual mortgage payments including a pre-set interest level.

It is often appropriate for the recipient to have a lawyer or accountant look over the mortgage agreement before signing on to anything long-term. The money may be dispersed in several payments or one lump sum into an account of the recipient’s choosing for mortgages; buy-to-let property owners should consider the tax implications of this choice.

Problems

Typically, investors will choose to avoid situations where they may be lending financial resources to individuals with poor credit. Furthermore, the downturn of the economy in 2008 and 2009 forced many lenders to become more stringent on their lending behaviors, even in foreign economies.

Due to these credit and economic issues, many lenders require a co-signor on all loaned funds or require a thorough financial analysis of the property to determine its projected income before dispersing the funds.

Although the buy-to-let mortgages are offered very close to the same interest rate as residential mortgages, they may often be slightly higher and charge more fees. These fees and higher rates are attributed to banks’ interpretations of buy-to-let mortgages frequently being higher risk. Despite these problems, the buy-to-let mortgages often offer excellent opportunities for individuals to receive adequate finances to purchase highly lucrative letting properties.