When you’re looking for your first rental property mortgage it’s a natural assumption that the best place to go get that mortgage is your personal bank.
After all they have your bank account, know your history, probably even have their fingers into your retirement investments. Why wouldn’t they give you the best rates and the best options?
When it comes to rental properties, there are many reasons!
Rental Properties Are Risky
At least in the banks eyes.
And it’s understandable when you see how little so many landlords know about owning and operating a rental property.
This scares banks as they like to reduce all possible risk so they can make as much possible profits.
Overall, rental properties simply contain more risk than your personal home so many banks have restrictive options on both what types of mortgages are available and the qualifications you need to actually qualify for one.
Banks Typically Only Have Limited Options
When you’re dealing with your personal bank they tend to only have a handful of mortgages available. There’s often a bunch of variations on term length and a few options regarding fixed or adjustable rates, but that’s mostly it.
You then need to get shoehorned into these limited options which means you may not get the best fit, in fact you might end up stuck with the only fit which really doesn’t suit what you need.
Banks Will Limit Your Growth
The big problem for an investor looking to grow a rental portfolio is it doesn’t take long for you to outgrow your bank.
By this I mean the majority of lenders want to reduce their exposure to risk. Having someone owning multiple properties starts making that potential for risk grow.
To help protect themselves they often limit an individual to only a handful of properties before they get cut off from qualifying with that lender for more mortgages.
This typically happens just as you’re starting to hit your stride and figuring everything out and bam, you find yourself stuck in mid stride having to quickly get educated about mortgages and your options.
So why not save time and go directly to a mortgage broker?
Mortgage Brokers Give You Options
When you’re dealing with a mortgage broker, an entire new doorway opens for you. Especially when you’re using a mortgage broker experienced with investors.
You see a mortgage broker has access to not just one bank and it’s limited internal options, but often dozens of different lenders and mortgage products many designed specifically for investors.
As you’re not limited to a single lender they can also help you move past a single banks limitations of number of properties you have mortgages on.
True there will still be hurdles due to qualification requirements (debt servicing rations, total debt ratios and all kinds of fun ratios), but over time a broker will still have more options for you.
Plus a broker doesn’t cost you anything. There is no additional fee you pay, they get paid by the lender who they eventually line you up with (so yes this could provide a conflict of interest, but that’s why you want a broker experienced with investments as you also become valuable to them!).
What Has Your Experience With Rental Property Mortgages Been?
Have you run into this too? Got any good mortgage stories you’d like to share? Leave us a comment below!