What You Should Know About Financing Investment Properties

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So you’re thinking about financing investment properties. You surely have so many options to choose from. However, getting the best deal the first time may be the most difficult part since you’re still on the learning process.

For starters, we have here a list of things that you should know about financing investment properties.

1. You can still invest even with poor credit score.

Although a stellar credit score is not strictly required to be able to get a mortgage loan for an investment property, it would definitely help you land on favorable rates. Having a credit score of 630 is enough to get approved for a mortgage. But if you think your credit score falls short into what’s considered “good” you can turn to hard money lenders. There are also real estate syndicates that allow mortgage loan for those who have poor credit score rating. However, money loaned from these institutions would entail that you have to pay a higher interest rate.

Having a credit score of below 740 would subject you to additional costs for the same interest rate. If your credit score falls below 740, you would still need to pay an additional fee just to ensure that you will have the same interest rate. Another option to paying points if your credit score does not reach 740 is to accept the offer with a higher interest rate.

2. Learn to compare lenders.

When looking for the best lender you should know how much their annual percentage rate or APR is. Ask about their closing costs, speed of funding and terms as well.But when you’re looking to finance investment properties your top priority should be the speed of funding that they offer.

You should also need to consider your goals when comparing lenders. For example, if you’re planning to opt for a quick flip, a high interest rate may not pose a lot of issue compared to a loan that will be funded in 48 hours. If you plan to invest in a rental property, the total cost of the money that you plan to borrow should be carefully considered and keep in mind that this amount could eat into your expected long-term profit.

3. It is better to provide a down payment.

Mortgage insurance will not be covering any investment properties. This is one important fact that you should remember when financing for investment properties. As a result, you will be asked for a minimum of 20 percent down when securing traditional financing. If you are able to make a down payment of 25 percent, this could increase your chances of qualifying for a better interest rate. If you don’t have anything for down payment, you can still take your chance on getting a second mortgage on a property. However, securing it would be more like an uphill battle for you.

If you see a good property that you think may entitle you to a high profit, it is best to secure a down payment right away. If you run short of money for down payment, might as well turn to financial institutions such as viefinancial.com.au for help. However, if you are not yet certain which type of loan works best for your investment strategy, ask the experts first.

4. Consider your debt-to-income ratio.

Before diving into the world of financing investment properties, it is but proper for you to get your finances in order first. Start with checking your debts. You have to see to it that your debt is not consuming much of your income and if you think it does, consider resolving this issue first before jumping into any type of investment.

This is because when financing investment properties, your debt-to-income ratio will be assessed. The bank will have this as a basis to gauge if you can manage well your monthly payments. To figure out your debt-to-income ratio (DTI), know how much is your recurring monthly debt and then divide this amount with your gross monthly income. The result will serve as your current DTI. Having a high DTI would mean that the amount of debt you have is higher than what you’re earning. This could negatively affect your chances of getting a favorable interest rate since the bank will always factor in your DTI. A higher DTI will also make it too difficult for you to secure funding from other sources.

It is important to conduct a thorough research first for the best investment properties before making a final decision. Build your knowledge and don’t just rely on your confidence when signing up for any financing options.

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