The last housing crisis is an old memory, and now home prices are getting better day by day. But does that mean that there are opportunities for you to invest in residential real estate with an investment property mortgage?
Currently, housing values are increasing in most of the places. As per the National Association of Realtors (NAR), during the third quarter of 2018 in comparison with a year earlier, 93% of metro areas experienced rapid gains in prices for single-family, existing homes.
The interest rates are still low; however, the days of easy and quick financing are gone, and it’s quite tough now to get loans for investment properties due to the tightened credit markets. Although, if real estate investors do little preparation and use some creativity, they can still manage to get the needed financing.
The below tips can increase your chances of success if you’re planning to borrow for an investment property.
Tips to finance investment property:
1. Have a strong credit score
Even though numerous factors (including policies of the lender you’re dealing with and the loan-to-value ratio) can have an impact on the terms of an investment property mortgage, you should first check your FICO score before trying to get a rental property financing.
It can start to cost you additional money for the same interest rate if you have a credit score below 740. You will have to pay a fee to have the interest rate stay the same if your credit score is below 740. The fee can range between one-quarter of a point to two points to retain the same interest rate. The alternative to paying points is to accept a higher interest rate if your score is below 740.
Furthermore, you should have at least six months reserves in your bank account to pay all of your expenses (including investment and personal costs) as it has recently become part of the lending process.
2. Make a substantial down payment
You’ll need at least 20% in down payment to get traditional financing, as investment properties are not covered by mortgage insurance. According to Huettner, “you may qualify for an even better interest rate if you can put 25% in down payment.”
You can always try to get a second mortgage on the property, in case you don’t have the down payment money; however, it will be a tough task.
3. Use creativity
According to Ben Spofford, an Ohio home remodeler and former real estate investor, “If you’re planning to buy a profitable property, think about acquiring a down payment or renovation money via a home equity line of credit (HELOC), from your credit cards, or through some life insurance policies.”
If you don’t have a long history of successful real estate investments, be aware that you may face some skepticism. It is also the requirement of some peer-to-peer groups that your credit history should meet their specific criteria.
If you are planning to get an investment property mortgage, Lendova is here to assist you. Visit our website www.lendova.com for further information.