What is considered as an Investment Property in the United States? An Investment property is a property you do not occupy as a residence. It could be a secondary home , a rent producing property or a property you buy to fix and flip.

An Investment Property is intended to produce capital gains or steady rental income. An Investment Home could be a property you buy and hold for a long term rental, a home like lodging for vacationers or a property you decide to buy, renovate and flip.

Mortgage options for Investment property are different than the ones for Primary Home or Secondary Home. Mortgage rates for Investment property are often higher than those of primary or secondary homes because lenders look at investment property as income producing source and a higher risk due to the fact that in case of a financial difficulty, homeowners may save their primary home first.

Most Popular Loan Options for Buying an Investment Property.

(1) Home Equity Loan [HE Loan] on your primary home:One of the most common way people buy investment properties is by taking equity out of your existing primary home in the form of a Home Equity Loan or 2nd Mortgage. Home Equity Loans are fixed rate 2nd position mortgage loans that are available for personal use/investments while keeping your existing mortgage as it is.

(2) Home Equity Line of Credit [HELOC] on your primary home:A Home Equity Line of Credit [HELOC] is a 2nd position loan which converts a portion of the equity in your home into a credit line. You can use this line of credit for any personal use and make only interest payments during the "draw" period. The draw period is typically 3-10 years. You can put the funds back and reinstate the credit line if you like to. At the end of draw period, any remaining balance converts into a regularly ammortized mortgage where you then pay principle and interest payments.

(3) Cash out Refinance on your primary home:It may make financial sense for you to do a cash out refinance rather than a HE Loan or a HELOC depending on the rate you have on your existing mortgage and the amount of cash you need to buy the investment property. Rates on a cash out refinance are lower than HE Loan and HELOC as those options are considered in 2nd lien position.

(4) DSCR Loan:A Debt Service Coverage Ratio {DSCR} is a popular loan type amongst investors in real estate. A DSCR program may be suitable for you if your total income generated from the property is equal or higher than the total expense on the property. In other words, the money you receive from the property should be higher than the expense of mortgage payment, maintenance and other expense you incurr.