Getting rental property loans may be a challenge as lenders require several things. But you can make it less taxing by following the five tips below for financing your investment.
Five tips for financing your investment
1. Make a considerable deposit
Having a substantial down payment may lead to favorable interest rates, making the monthly repayments reasonable. Also, note that banks that offer conventional loans may require you to raise a minimum of 20% of the purchase price.
If you can’t afford to pay the deposit, you may invest in real property as an owner-occupant. It means that you can acquire real estate as your primary residence. Because of this status, banks may charge you low-interest rates.
2. Clear your debt first
Since you’re borrowing money that you’re likely to pay for longer, lenders will consider your ability to repay the loan. You can check your debt-to-income ratio (DTI) by dividing your monthly debt by gross monthly income (Recurring Monthly Debt/ Gross Monthly Income × 100).
The higher the percentage (DTI), the less able you’ll manage your debt and vice versa.
3.Keep a good credit score
Checking your credit score before you even approach a bank is essential. If your credit score is less than 740, your interest rates could be higher. You can have good credit by ensuring that you pay your current debts on time and regularly.
4.Choose a fixed-rate mortgage
As you apply for the loan, your bank will give you two options of interest rates; a fixed-rate or an adjustable-rate mortgage (ARM). The fixed-rate mortgage allows you to pay the same amount of interest rate for the loan duration. On the other hand, on the adjustable-rate mortgage, your interest will vary.
5.Prepare your paperwork
You’ll need lots of documents when applying for a loan, including
- At least two months of bank statements
- Certified letter from CPA if you’re self-employed
- Investment and retirement statements
- At least two recent pay snubs
- Drivers license
- Social security card
- Any bankruptcy, divorce, separation papers, if applicable.
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