If you are looking to buy real estate, financing real estate is probably one of the biggest issues on your mind. Right now is a great time to invest in the real estate market, as real estate across the country rebounds and the job market and economy strengthen.
At the same time, financing can be a bit trickier these days than it was 10 years ago. The credit market is tougher and it’s especially difficult to get loans if you’re looking at investment properties. This doesn’t mean that it’s a bad idea to try, though, and there are some things you can do to make it easier.
With that in mind, we’ve compiled a list of tips to help you make the strongest case for a loan application that you possibly can. Following all of these suggestions will greatly improve your chances of success in financing real estate.
Get A Large Down Payment Together
Mortgage insurance typically doesn’t cover investment buys. What this means for the average buyer is that you can’t get traditional financing unless you can put down at least 20% as a down payment. The more you can put down at the outset, the better interest rate you can secure and the better your chances of success in getting financing.
If you can’t manage a large down payment, this doesn’t mean that it’s impossible to get financing. It will make things a lot more difficult, though, so do everything you can to scrape together the largest down payment you can afford.
Make Sure Your Credit Score Is As High As Possible
If you got a credit score of 750 or greater, the mortgage lenders will probably be knocking at your door. This is the range you want to be in in order to get the best interest rates and the best terms for a good down payment. If your credit is anything less than 700 you may find it very difficult to get approval, and particularly if you’re buying for an investment property. Anything under 740 and you may have to pay a higher interest rate or pay a fee to get a lower interest rate.
The less debt you’re carrying at the moment you go in to ask about financing real estate, the better your chances of getting what you want. What does this mean? It means if two months or six months of waiting before you start looking for an investment property could enable you to pay off a huge chunk of your debt, this could put you in a much better position when it comes to financing real estate. This is the kind of thing that lenders really like to see.
Have Plenty Of Money In The Bank
Increasingly, lenders are looking at what you have banked away when they make their decisions about financing. This is especially true if you’re looking at an investment property. The standard these days is that you need to have enough reserve in the bank to pay all of your expenses for six months. This includes all of your existing expenses as well as all the new expenses you will take on by financing real estate.
If you already have several investment properties, look for lenders to ask you if you have enough banked away to cover the costs of those properties if they should sit empty for six months. If not, you’re going to have a hard time getting a loan.
Consider Asking Around About Financing Real Estate
It used to be that no seller would be interested in owner financing. These days, it’s harder to qualify for a bank loan so it has become more acceptable to ask. The key is remembering that you have to sell yourself. You have to give the seller a reason to believe that you are trustworthy and worth taking a chance on. Prepare your game plan early before you go in and always remember to put your best foot forward.
Talking to the owner isn’t your only option, either. You’re almost always going to get better terms out of the neighborhood bank then you will from one of the large national banks. Local banks and credit unions are more flexible and are allowed to make loan decisions that are more generous than the national banks can afford to be. They also have an interest in local investment the can work in your favor.
Also, consider mortgage brokers. Mortgage brokers often have access to a lot of choices in loan products, but you do have to be careful in using one. Be sure to check carefully about reputations and terms before you do anything with a mortgage broker. Ideally, you want to broker who belongs to a professional organization.
Look for Creative Ways Of Getting What You Need
If you’re not able to get the down payment that would make financing real estate a viable option for you, or if you need to do some renovations on the property that you’re looking at, is there some other way to get that money together than a traditional loan? Possibilities include opening an equity line on your home or selling off a life insurance policy. You could also consider trying to get a personal loan from a friend or family member or from peer to peer lending sites.
Just remember to be cautious when borrowing money from family or friends and make sure that all the terms are set forth clearly before you do anything. Additionally, if you’re planning on going through a lending site, know that if you don’t have a track record of successful investment real estate buys, then your credit history becomes more important than ever.
Financing real estate is not impossible and now is a great time to invest in a valuable and growing market. To get the best possible outcome, prepare the biggest down payment you can, shore up your credit history, pay down your debts, think outside the box, and ask about owner financing. When you start making money off your investment property, you’ll be glad you did.