How much higher is the interest rate for a rental property mortgage?
I’m looking into purchasing a property to rent out to tenants… I know the appeal rate will be higher on a leasing, but how much higher? Also, is the insurance cost higher or lower than regular homeowners insurance?
The rate will depend upon your credit worthiness, income, debt to income ratio, usually it’s about 1% higher for most loans I complete. And insurance will be higher and initially after the closing until you find a tenant it will be very high since it won’t be full yet and will have to be insured as vacant.
On the insurance … you will want to get a commercial policy, which will cover the building even when not full. It will also provide you with a higher level of liability coverage, and coverage for lost income if the house becomes unihabitable due to fire or flood, etc.
My cost for a commercial policy, when I converted my primary residence to a leasing, increased 50%. It’s pricey, but it’s also a enter-off on taxes.