2024 is poised to be an exciting year for real estate investors.
Mortgage interest rates and home prices are expected to remain elevated, offering astute investors growth opportunities.
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Additionally, experienced mortgage lenders like Compass Mortgage are working to meet investors with creative property financing solutions.
In this article, we will discuss the rising trends in investment property financing and what investors need to be aware of in the coming year.
What will the real estate market look like in 2024?
Market experts and real estate professionals frequently make predictions based on the data that’s available to them.
Whether the predictions are accurate is revealed over time. Sometimes they are spot on, while other times they are far off the mark due to changing circumstances.
How do investors make sense of the 2024 predictions that are coming your way?
Let’s take a look at what the data is showing and how you can interpret this information for your 2024 financing goals.
Interest rates
Inflation is a key influencer for current mortgage interest rates, and many economists believe interest rates will remain high into 2024 as inflation slowly declines.
Most agree that rates are expected to drop over the next few years, but it’s unclear how quickly this will happen.
Home prices
The lack of home supply has contributed to sustained high prices throughout 2023 and into 2024.
If interest rates begin to drop in 2024, demand will increase and more homeowners will feel more comfortable selling.
Rental demand
Higher rates and home prices impact a buyer’s ability to purchase a home in the current market, creating consistent demand for rental properties.
Properties also tend to sell faster in a seller’s market, which benefits fix-and-flip investors.
Investor opportunities
The U.S. is still recovering from the impacts of COVID-19, including the desire to move out of major metropolitan areas and into smaller cities.
Rental demand remains elevated in areas where home supply cannot meet demand.
However, experts predict that the mass move to suburban areas during the pandemic is not likely to last long, and people will once again return to cities.
In anticipation of this return, some investors may want to set their sights on rescuing vacant rental properties to revamp or repurpose them into suitable housing solutions.
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What financing options are available for real estate investors?
To accomplish your investment goals, you’re going to need the right type of financing.
The current real estate market trends are directly tied to the rising trends in investment property financing.
Investor needs have changed based on the market’s ebbs and flows.
In today’s market, this means investors need fast, flexible financing solutions tailored to their unique goals.
Let’s take a look at the most popular types of investment property financing in 2024.
Conventional loans
Conventional loans offer investors various term lengths and rate structures.
To qualify for a conventional loan you will have to meet certain lender requirements, such as:
- 15%-20% down payment
- Credit score in the upper 600s-700s
- Proof of income and employment
Conventional loans are best suited for long–term projects, such as residential or vacation rental properties.
FHA and VA loans
FHA loans are backed by the Federal Housing Administration, while VA loans are backed by the U.S. Department of Veterans Affairs.
Some borrowers are surprised to learn they can purchase an investment property with an FHA or VA loan.
These loans previously were not the most common type for investment because they require borrowers to purchase a primary residence. This means that the borrower must live on the property that they intend to use as a rental.
However, FHA and VA loans offer numerous benefits to borrowers and can give newer investors access to a property that they may not be able to afford otherwise.
FHA loan requirements:
- Minimum down payment of 3.5%
- Credit score as low as 580
- Up-front and annual mortgage insurance premiums (MIP)
- Lower loan limits than conventional loans
VA loan requirements:
- Available only to active-duty service members, veterans and qualifying surviving spouses
- Potential for zero down
- Credit score as low as 580
- Lower interest rates
- No mortgage insurance requirement
While FHA and VA loans have more limitations than conventional loans, they are becoming a more popular investment loan option in a market that requires creative financing solutions.
DSCR loans
DSCR loans represent a notable trend in investment property financing due to the more flexible requirements.
DSCR, which stands for debt service coverage ratio, focuses on the property’s income potential rather than the borrower’s finances.
Calculate DSCR with the following formula:
DSCR = Net operating income (NOI) ÷ Total debt obligations
Many lenders accept a DSCR of 1.0, which means the property’s NOI is equal to its debt obligations. Other lenders prefer a DSCR of at least 1.25.
DSCR loan requirements:
- 20%-25% down payment
- Credit score of 620 or higher
- Investment properties only
- High loan amounts
The right loan option for an investor depends on their unique goals.
A trusted mortgage lender can help investors find the right solution for their next project.
What investors need to do to stay ahead
In an ever-changing market, what can investors do to stay informed on the latest market trends and financing options?
Here are a few strategies:
- Regularly read industry publications, real estate news and reports
- Attend local real estate events, join industry associations and engage in networking
- Use tools and apps that provide real-time market data, property valuation and financing rate updates
- Maintain strong relationships with real estate agents, lenders and other industry professionals
The key player in your investment is your mortgage lender. It’s crucial to develop a strong working relationship with your lender to support your goals.
Explore your investment loan options with Compass Mortgage
The experienced loan officers at Compass Mortgage are ready to help you navigate the rising trends in investment property financing.
Our team respects and values your financing needs and acts as your partner and advocate throughout every step.
Apply for an investment loan now, and we will reach out to you shortly to explore your options.
We look forward to helping you find the perfect solution for your investment.