Investment properties are usually one to four-unit dwellings that borrowers use as a rental property and do not maintain as their primary residence. These situations require special financing referred to as an “Investment Property Mortgage Loan”.
Financing Investment property has many advantages when compared to a primary residence. Rental property loans allow a borrower to qualify with no proof of income, no tax returns and the loan programs available are quite numerous unlike when financing the home you actually live in.
The main drawback to investment property financing is that it requires a minimum down payment of 20% as opposed to a conventional or FHA loan where you can buy a primary residence for as little as 3.5% down.
Here are a few insights on how to qualify to buy an investment property.
Check Your Credit
Look into what your credit is like. Review for credit discrepancies and any outdated information that may be reporting. Should you discover anything that can be removed or improved then begin the process of doing do. Investment property loans can lend on credit scores as low as 580 but be prepared to pay more for your loan in fees and higher rates.
Down Payment
This one is self-explanatory, you will need to have at least 20% down to purchase an investment property. You can get this down payment by saving it yourself, obtaining a gift from a family member, or leveraging one of your other properties with a cash-out refinance.
Find a Lender and Pre-Qualify
Try to price out your loan with a few different brokers or lenders. Speaking with a broker is sometimes the best bet. Brokers have access to numerous loan programs, each program can vary greatly in regards to the down payment amount, interest rate and fees. Speaking with each individual lender will usually only give you the qualifying requirements and loan terms that the particular lender you are speaking with can offer.
It can also become quite an undertaking to go from lender to lender trying to find the right deal when a good broker already has most of the information for different lenders that lend on the investment property. Once you find a lender or broker you are comfortable with then go ahead and have them Pre-Qualify you for your loan.
Shop for Your Property
Now that you have Pre-Qualified, you know how much you can spend and what your monthly payment will be, It’s time to go shopping for your investment property. The process is much like the process you went through when looking for a lender. Try to go online and find a realtor that is familiar with the area that you want to invest in. Make sure they have experience in listing and or buying an investment property.
Submit Your Loan for Underwriting
Now that you have found your investment property, you will need to submit all of your documents to your lender or broker for final loan approval. Depending on what loan program you were pre-approved for this could entail two years of tax returns, bank statements, and other income information.
As we mentioned previously, Investment property loans have many programs that do not require any of those documents and can approve you with as little as lease agreements from your rental property that show enough rent to cover the mortgage payment.
Escrow Process
After your loan has been approved and you find yourself in escrow, be sure to have all the relevant property inspections and due diligence completed within the contractually mandated deadlines. Once you close escrow and obtain the keys to your investment property you will want to begin the process of preparing and marketing the property for rent as soon as possible. The longer you wait to rent out the property, the more money you will lose.
Maintaining Your Investment Property
It is very important to keep up with maintenance on your rental property. Any deferred maintenance will lead to bigger problems and larger costs later. Try to handle any issues or issues that arise as quickly as possible. Doing so will surely save you money in the long run.
Get Your Investment Property Loan Approved
If you are looking for a lender with a proven record in financing rental properties and an extensive knowledge of the many loan programs available to investors nationwide, give us a call so we can discuss your situation. We have over 30 years of experience lending to seasoned and new real estate investors to help you with your rental property portfolio.
Call us now at (866) 690-7463 to talk to one of our agents.