Do you know the real estate sales & brokerage industry is worth $156.2 billion?
Property has been the preferred investment choice for most investors, considering it provides a superb hedge against inflation. Nevertheless, starting out on real estate investment can be tricky, especially when you require to secure financing.
The requirements for financing investment property are different from those of a primary home. Luckily, there are tons of financing options available.
Here are five investment property financing tips to help you get the best deal.
1. Have Your Income and Employment Documentation in Order
Asset-based lenders don’t care much about your employment history or income, provided you have security. To some extent, they are the best option.
However, most lenders with favorable terms consider your income and employment situations before approving your investment property loan. With this in mind, it’s best to have all your income documentation in order.
Having a few recent pay stubs or previous tax returns is a great idea. It’s also worth having your HR contact number to verify how long you have been employed.
2. Clear Your Other Debts
Debt reduction is a great way to boost your qualification for property investment financing. It improves your debt to income ratio, thus increasing your chances of getting better loan terms. Paying down your debts is also a great way to raise your credit score.
3. Shop Around
When shopping for real estate investment financing, don’t go for the first lender you come across. There is a probability of getting better interest rates from another lender.
Opt for a local bank for financing rather than national financing institutions. These banks are flexible and understand the local market better.
Read this article to learn more about how to find investment property deals in your area.
4. Improve Your Credit Score
Improving your credit score should be the first thing you do before exploring your property financing options. This is important considering the score impacts the type of loans you are eligible for, the amount you can borrow, and the interest rate.
To improve your credit score, ensure you make timely payments on your loans. Also, handle any discrepancies on time to avoid the last-minute rush.
5. Have a Substantial Down Payment
If you plan to obtain a conventional loan, start by making sure you have a substantial down payment. A sizable down payment will help you secure favorable interest rates.
When starting as an investor, lenders demand that you come up with a down payment of at least 20% of the property value.
Bottom Line on Investment Property Financing
Property investment is normally a long-term game where profits and gains come over time. With a down payment of 20% and a good credit score, it shouldn’t be difficult to find favorable investment property financing.
However, finding the best deal should be a priority as it makes a difference in your property cash flow and long-term equity. Take time to make yourself the best applicant and ensure you can afford the payments before obtaining the loan.
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