what is investment property loan? why this loan is more expensive than the other loan?

Asked by Angelito, Irvine Business Complex, Irvine, CA Tue May 29, 2012

if the property that i want to buy and will be finance through the bank, if this home will be converted to nursing home later on or for rent later on, is this loan will be consider as investment loan?

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Bob Willett, , Sacramento, CA
Wed May 30, 2012
Actually you are asking about three different types of loans. If you are buying the home to live in it now, and will do so for at least the next 12 months, you can get a typical residential real estate loan. It could be FHA, VA, conventional, etc. so long as you and the property are within the qualifications guidelines.

If you intend to rent the home out, then it becomes an investment loan, and will have a higher interest rate, and be subject to more restrictive underwriting guidelines. This is still considered a residential real estate loan at this point. Down payments are typically 25% but can be less with higher fees or a higher rate.

If you intend on turning it into a nursing home than you are no longer in the realm of residential real estate lending. You will need to obtain a business loan from a bank. The loan will be evaluated as a business venture and could be an SBA loan or other type of financing.
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Darrell D. D…, Agent, Schertz, TX
Wed May 30, 2012
Any home you purchase that you will not claim as a homestead (ie. - you will not occupy) will have higher up front costs. Some lenders may offer different rates for a 2nd home (like a vacation get away home) versus a straight investment home. But, most will group both together as an investment home.

Typically, these purchases will require at least 20% down (I have seen some require as much as 30% depending on the lender). And the interest rate will be slightly higher. The reason for the higher up-front costs is because of a key word in lending - risk. The rationale is that people are more like to lose their investment property if they get in a financial bind than they are their own home.

On a side note, you made mention of the property being a possible nursing home. If it is anying more than a residential 4-plex, then it would probably not qualify for a typical home loan and would fall into the category of a commercial loan, which is a whole other animal. Hope this helped. Good luck.

Darrell D. Drouillard
Home Team of America
16719 Huebner Rd., Bldg 4
San Antonio, Texas 78248
210-881-6760 (Fax)

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