Buy to Let Mortgages Explained

There is a variety of mortgage types available, one of them being a buy to let mortgage. With a buy to let mortgage, a purchaser secures a loan for a property with the intention of renting it out instead of taking it on as his or her main residence. This type of mortgage works well for people who are investors, especially with the housing market downturn or people looking for additional income. However, you must be willing to make a commitment to maintain the property, select reliable tenants to generate income and be prepared for the unexpected.

Process

Buy to let mortgages are usually made as interest-only loans or repayment mortgage loans. Qualifications are similar to those for regular mortgage loans with the exception of one item. With buy to let mortgages, the purchaser most prove that there will be sufficient rental income to cover the mortgage. The future rental income is used as a variable to determine if the borrower will actually be able to fulfill the loan commitment. A benefits of the buy to let mortgage is that there are loan options available to meet your specific circumstances. The loan can be fixed, variable or flexible. The terms of the loan can help dictate how you set the rental amount in order to cover the mortgage and possibly turn a profit for yourself.

Risks

As previously mentioned, if you are approved for the buy to let mortgage loan, then you have created a long-term investment income. This is the main benefit of buying to let. However, as with all investments, there are some risks involved. You must be prepared for landlord duties. As a property owner, you will have to maintain the property to keep it marketable. Second, you must be able to draw reliable tenants. This will require thorough screening and getting long-term commitments from renters. Third, you must prepare for down times. Your property may not be continuously occupied. This will leave you responsible for making the mortgage payments.

Preparation

If you have decided that buying to let is an option for you, there are a couple of preparatory steps that you should consider. First, scout out the location of the property. Location is a huge drawing point for renters. While it may be convenient to have it near you, you want to be able to turn a profit and pay off the mortgage. In addition, you want to find a location in which the house is more likely to appreciate. Second, become familiar with property owner responsibilities. There are certain legal requirements that you must adhere to being a property owner. Third, set up a rainy day fund. This fund should help cover expenses when your property is vacant. This an investment for which you want to see a return profit. For this to happen will require some investment of your time and possibly money.

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