An investment loan is a home loan that you take out specifically to fund the purchase of an investment property. Investment home loans typically have stricter approval criteria compared to home loans. This is mainly due to the risk involved in non-owner-occupied properties.

Investment home loans function the same way as owner-occupied home loans. A lender will loan you a sum of money, which is then paid back in regular instalments over the loan period. The loan repayment period can be up to 30 years.

The selected lender will seek information to get a full picture of your finances before approving the investment loan. This will typically include your income, expenses, assets, liabilities, and credit history.

While the size of the deposit ultimately depends on the price of the property intend to purchase, investment home loans often require a lower loan to value ratio (LVR). This means you may be required to pay a larger deposit upfront. For example, a bank may approve a loan for 80% of the property value, in which you must pay the remaining 20% as the deposit. Some lenders may permit property investors to pay a lower deposit in exchange for taking out Lenders Mortgage Insurance (LMI), or if the borrower uses another property as security for the loan.

As part of the approval process lenders will consider rental income received to determine your ability to cover the mortgage, this may lower the debt-to-income ratio (DTI).

Once you have decided on a loan product the next step in purchasing an investment property would be to apply for pre-approval. A pre-approval is a loan application where you are not required to provide all the security details at this point in the application process. Your lender pre-approves a maximum amount to lend to you based on a full assessment of your financial situation and the type of investment you are making.  This does not cost you anything and you have the advantage of knowing what your repayments going to be when you purchase the property. This knowledge along with expected rental income will provide you to arrive at a realistic purchasing budget.

At Viable Finance, we want to assist you in your investment property investments. We will discuss your idea and then review your financial situation. We then prepare all the paperwork required by the selected lender to obtain approval of your investment property loan. We look forward to speaking with you.