Have you ever desired to own a home but your income won’t let you? The good news is that you can still make your dreams come true through buy to let mortgages. These mortgages are becoming an increasingly popular way of funding the purchase of rental homes.
Basically, these are the mortgages specifically designed to enable you to buy homes, which you can later rent out at a profit. These mortgages are different from the normal mortgages as they are targeted for specific needs.
The best time to go for these mortgages is when the house prices are down, and the rental prices are up. If you are short on funds, owning a home can never be easier than this. Through it, you can buy a home and use the rental incomes to pay the mortgage proceeds. This way you will not only generate profits (after covering all the costs), but the property will be completely yours after paying all the mortgage proceeds.
The buy to let mortgage variants
The number of buy to let mortgage providers is skyrocketing day by day. The demand and the competition is at an all time high. To stay in business and attract new customers, lenders have designed numerous packages. Generally, lenders offer them in three variants:
- the fixed rate
- discounted variable rates
- the tracker
These variants have their differences. A fixed rate requires you to pay a fixed interest rate up to a certain period, as per the agreement.
The interest payments in the discounted variant, on the other hand, adjusts to the underlying conditions such as the nature of the economy. However, when the shock is over, it reverts back to the standard mortgage rate. Of the three, the tracker is the least popular. As the name goes, it tracks key mortgage rates such as the federal bank’s/ central bank’s and uses it as a benchmark of your interest payments.
Which variant is the best for you?
It depends on two things: your financial situation and your attitude towards risk. Simply put, whether you are a risk taker or risk averse. With fixed rate variant, you are certain about the monthly payments. This enables you to plan for the payments in advance and helps you calculate profit/loss beforehand. For home owners who are facing some problems, (a good example is when rents suddenly drop or interest rates are down), discounted variant is the best.
Additionally, when the economy is facing uncertain times, the discounted variant would be the best. However, you may opt for the third type – the tracker. Though it is relatively less popular, it remains the cheapest and the safest. It’s not only suitable for the cash strapped, but also necessary for the risk averse. This variant is made cheaper because you won’t pay a risk premium in the form of increased interest payment, so as to cover unexpected change in interest rates.
How much can you borrow?
The amount you can borrow varies from one lender to another. However, most lenders fund you 85% of the property while contributing the remaining 15% through deposits. Since there are many lenders, finding the best that fits your needs is not a walk in the park. It requires you to put in a lot of time researching. To avoid such headaches, you may seek the service of brokers, who charge you a 2% fee for their service.
What should you do to ensure that you make profits?
One condition that lenders require prior to funding is the rental proceeds to be more than 130% of mortgage payments. This is the first thing that you should ensure. Another thing, you should ensure that the demand for the rental space is sufficient. You should also ensure the area you wish to buy the property in is well developed, and has good communication links. Additionally, you should ensure that the surrounding area doesn’t have too many rental space providers.
Before the purchase, a viable option of checking on demand is running an advert on local media saying that you have some houses to let mortgage, while specifying the location and the charges. If many people call you, go ahead and buy it. If not, well, give it a second thought. Another way is through seeking professional help. A local buy to let mortgage agent can help. The agent will be instrumental in advising the rental projections, most suitable rental type, and the most appropriate region to buy the rental homes.
Are there additional costs to incur?
You will incur additional costs. These are the costs such as taxes, costs of refurbishment and regular maintenance. The USAbuyingguide.com gives a comprehensive guide on the costs you are likely to incur when buying to let mortgage.
Now that you are informed that you can own a home even when strapped for cash, there is nothing else to hinder you from doing so. Sharing is caring. Don’t be mean with information. Share this with your friends and let them know that they too can own a home, regardless of the situation of their finances.