Real estate purchases can be a great way to invest your money. Most people end up turning a significant profit by either renting or flipping an investment property. Since these properties are not meant for the purchaser to live in, the requirements for financing an investment property can be quite stringent.
Here are three tips that you can use to help successfully finance your next real estate investment property.
1. Have a Large Down Payment
You will find it much easier to get a lender to approve your loan request if you have a sizable down payment to put toward the purchase of an investment property.
The reason a large down payment can be beneficial is that mortgage insurance doesn't cover investment purchases. Lenders rely on the security that comes from knowing mortgage insurance will compensate them for losses caused by a mortgage default.
By putting a significant sum of money down, you are essentially providing the lender with this added security instead. The more you put down, the more you have directly invested in the property and the less likely you will be to default on your loan.
A higher down payment can also help you qualify for a lower interest rate.
2. Strengthen Your Financial Profile
You must be a strong borrower if you want to qualify for a real estate investment loan.
Most lenders will only consider working with borrowers that have a high credit score. Banks and credit unions also want to see that a borrower has enough funds reserved to cover both personal and investment-related expenses for a period of time.
These reserve funds can be used to pay the investment loan in the event a property doesn't turn a profit at some point in the future.
If you want to secure a loan with favorable terms and a low-interest rate, it can be helpful to improve your credit score and bolster your savings before you apply.
3. Work With a Local Lender
Anytime you are worried about your ability to secure the right real estate investment loan, you should partner with a local lender. Local banks and credit unions typically have more flexibility than national institutions.
A local lender will be more willing to work with you when it comes to your credit score and any extenuating circumstances that might be affecting your financial portfolio. Borrowers are often able to get approved through a local lender after having been denied by a national institution.
For more information, contact a local lender or financing business, like Prosperity Lending - David Maier.
