As we head into fall and a post-pandemic economy, interest rates appear to be on the rise. With inventory for real estate remaining at an all-time low, that might leave many potential home buyers considering shelving their aspirations and renting for the next couple of years to see where things go. If you are looking to invest for your future, is taking out a non-QM for a mortgage a wise choice? There are both pros and cons to owning and financing a build-to-rent, so the answer is “maybe.” These are pro tips that we shared with RedFin’s audience.
What is a Build-to-Rent Home?
A build-to-rent home is a home that is literally built with one intent: to generate rental income. The owner can use it as a second home or vacation home if it is in a desirable location, but the main objective of the home is for short-term, long-term, or vacation rental profit generation.
What are the Advantages of a Build-to-Rent Home?
The biggest advantage to a build-to-rent home is that it helps to provide monthly income for the investor. It is also beneficial because the renters pay the mortgage payments via rent and utilities month after month – or at least a portion of the payments. Once the mortgage is paid, the investor not only owns a home and its value; they can also continue to rent it out to generate income for as long as they want.
Is a Build-to-Rent Home a Good Investment?
In investment terms, real estate is one of the safest ways to see steady growth. It is also a physical entity that you can sell at any point to recover what you owe, or even (hopefully) turn a profit if you decide to sell. That doesn’t mean that they are totally without risk. There is always the potential that the real estate market can drop, but unlike investing in the stock market, if that happens, most of your investment is still salvageable, or you can hang on to it until the market rebounds.
Why is Financing More Difficult Than a Traditional Mortgage?
Build-to-rent homes come with different obstacles for obtaining mortgage financing for those who already own another home. First, your approval is based on a debt-to-income ratio. If you are building it specifically to rent out, then you are likely going to use that rent to offset the cost of the mortgage. It becomes a catch-22 because the income you need won’t come until it is rented, and you can’t get approved without the income. That can limit the potential approval pool for a traditional loan.
What is Non-QM for Build-to-Rent Homes?
Non-QM loans differ from traditional loans because they are determined by things other than just your debt-to-income ratio. Since they don’t have the same regulations as traditional mortgage approval, they might be a viable option for those who can’t be approved through traditional lenders. Things like asset-based loans, interest-only loans, and other products are ways of getting around the rules and regulations that often limit potential home buyers.
Is a Build-to-Rent Home a Wise Investment for You?
The answer to whether a build-to-rent home is a wise investment for you can’t be answered in a generalization. What we can say is that if you are considering it, Home Springs Mortgage is your go-to source to help your customers obtain the financing they need to buy either a second home or a build-to-rent home. We have many financing options that are inventive, forgiving, and outside the realm of traditional lending. Contact us today to find the product that will help you get the mortgage approval you need.