What Loan Should I Get If I Don't Plan on Living in the House?

Buying a house can plant your money in a good place.

Buying a house can plant your money in a good place.

The kind of loan you get for a house you don't plan to live in will depend on the type of house you buy and what you plan to do with it. Define your goals before seeking a loan. You may buy a house as rental property, to give you income. Or you may buy a house as an investment, hoping to re-sell it at a profit at some time in the future. You also might buy a house for an aging parent who wants to remain in a house rather than move into another residential facility.

Fixed Interest for Rental

Apply for a fixed-interest loan if you are investing in a rental house. This gives you a set interest rate and basically fixed payments over the life of the loan. Be prepared to pay at least 20 percent down and expect higher interest rates than on an owner-occupied house and usually a shorter term, probably no more than 20 years. Make sure your mortgage payments are well below your expected rental income.

Get a Short -Term Balloon

Consider a "balloon" loan if you're buying a house you expect to re-sell in a few months or years at a profit. These loans are basically interest only for a specified term, but you must repay the entire loan at the end of that time. This type of loan gives you low monthly payments while you own the house and the opportunity to pay it off when you sell.

Consider an ARM

Try an adjustable-rate mortgage if you're buying a house for a parent or relative to live in for an indefinite period. An ARM typically starts at a low interest rate but has options for increases as general mortgage rates change. Some ARMs provide for annual adjustments. Others have a fixed interest for a period, then allow for a one-time change. It's a good way to get low interest payments at the start of a loan.

Look for Private Money

Think about "hard money" loans, typically from individual investors or groups of individuals who have cash to put up for house loans as investments. Hard money can be difficult to locate, but these loans usually can be obtained more quickly and with less paperwork. Expect big down payments and short terms, as well as higher interest rates.

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About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.

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