Financing your investment property purchase
With home prices gradually increasing after the housing crash, many are left wondering if investing in the real estate market is still a good idea.
The National Association of Realtors (NAR) however, predicts steady growth for the industry in most parts of the country, with low interest rates continuing to attract buyers.
Financing Investment Property
Despite the low interest rates however, the tightened credit market can make it more difficult to secure a loan for an investment property. But the good news is all you need is a bit of preparation an effective strategy to successfully secure a loan.
Here are a few tips:
Put down a substantial down payment
Because investment properties are not covered by mortgage insurance, you need at least a 20% down payment to secure traditional financing. If you are able to put down about 25%, you can qualify for a better interest rate.
Boost your credit score
Your credit score is one factor that can greatly impact a loan’s terms for an investment property. If your credit score is below 740, you will need to pay a higher interest rate.
Avoid big banks
If you do not have a sizable down payment, it’s better to choose a neighborhood bank for financing, rather than a nationwide financial institution. A local bank is more likely to give you more flexibility, plus they are more familiar with the local market and have more interest in local investments.
Request owner financing
In the past, asking for owner financing made most sellers suspicious of potential buyers, as nearly anyone is able to qualify for a bank loan. It’s now more acceptable today due to the tighter credit market. If you decide to request for owner financing however, you need a strategy. Be more specific with the amount of money as well as the terms, so sellers are more convinced with owner financing.