With home prices inching downward and interest rates close to record lows, a lot of investors are tempted to scoop up properties while the pickings are lush. However, while prices are looking good, finding investment property mortgage financing can be a challenge.
Although the days of quick and easy loans may have come and gone, that doesn't mean it's impossible to find a good financing plan for your real estate investment. Here are some helpful tips:
1. Have a sizable down payment
Most investment property loans will require at least 20 percent down. If you can come up with more than that, you stand an even better chance at securing a low interest rate. There may be hard money lenders out there who will allow for a lower down payment but you'll likely have to do digging in order to find them. With a private investor, there is a good chance that your mortgage rate will be higher.
2. Be an attractive loan candidate
While many things will influence your ability to qualify for a loan, your credit score will be a big factor. Be sure to keep tabs on your credit score before you apply for a loan. If you have a low credit score, you may have to need to pay points to get your interest rate down. If you know your credit could use some improvement, you should consider taking some time to build it back up before diving head-first into an investment deal.
3. Request owner financing
While owner financing used to be frowned upon by some sellers, the strict changes in credit requirements have made this tactic more acceptable. A lease-to-own or rent-to-own plan could be an alternative option for the buyer who is reluctant to go through a bank; however, any time you enter into a financial agreement with a non-professional, you run certain risks. Always get your agreements in writing and consult a legal professional when dealing with this type of financing.
4. Investigate equity loan options
If you're looking for a property that has good income potential, you might want to research borrowing through home equity lines of credit (HELOC). Be aware that HELOCs can carry a higher risk for the borrower. With a HELOC, you are essentially putting your own home on the line in order to secure a down payment or repair money for your investment. If the investment should fall through, you could end up in trouble. If you are looking for a large lump sum, you may want to research a home equity loan where the interest rate may be fixed.
5. Research your investment thoroughly
Before securing any kind of financing - especially the more risky options such as owner financing or borrowing against equity - make sure you know all you need to know about your investment. You don't want to be unpleasantly surprised or find yourself unprepared.
As always, don't rely on your own personal knowledge when it comes to financial investments. Take the time to research the property itself, your own credit and financial state, as well as all possible financing opportunities.
Steph Medeiros is a marketing professional who writes about financial topics including investment property loans and rental property financing solutions.
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