The housing market crash is something that’s in the distant past. Home prices are healthy, and a strong economy has helped to bring out an array of new investors who are ready to turn real estate investing into a part of their portfolio. While choosing a quality investment property is hard enough, once a person has found the perfect apartment or house, the question they must do is to learn how to finance it.
The good news is a bit of creativity and some preparation can help real estate investors get the financing they need. While this is true, there are also some challenges, which can be found over on Twitter. Keep reading to learn more about securing the financing for an investment property here.
Have a Good Down Payment
Because mortgage insurance doesn’t cover investment properties, usually it will require a down payment of approximately 20 percent to secure proper financing. If an investor can put down 25 percent, they may qualify for an even better interest rate.
When a person can make a large down payment, it gives them more leverage. It may also result in a person having more to lose if the investment isn’t successful. This can be a huge incentive and a bigger down payment will provide the bank more security against losing the investment it has made.
If the investment doesn’t go as planned, a person may lose their entire stake before the bank even starts to lose money on the property. For investors who don’t have any down payment money, they can attempt to take out a second mortgage on the property; however, it is likely to be an uphill battle.
Be a Strong Borrower
While many factors, including the loan-to-value ratio along with the policies of the lender a person is dealing with, can influence the loan terms on an investment property, it is also necessary for a person to check their credit score before trying to get a deal. If a person has a credit score that is under 740, it may cost them more for a better interest rate. Under this score means that the investor will have to pay a fee to have the interest rate remain low. This can range between a quarters of a point up to two points to maintain the same rate.
A point is equivalent to one percent of the loan mortgage. This means a point on a $100K loan would be the same as $1,000. An alternative to paying points if a score is under 740 is to just take the higher interest rate.
Getting the Required Financing for an Investment Property
When it comes to getting the right financing option for an investment property, there are several things to consider. Being informed is the best way to ensure the desired results are achieved. If necessary, someone who is new to investing needs to seek the help of the professionals to help ensure that the right financing is secured for the right price, which is the ultimate goal of anyone investing in property.