You’re on to something great and decided to purchase an investment property. Congratulations! In a world of Flip or Flop, Airbnb, and Rich Dad, Poor Dad, many home buyers are looking to purchase real estate property with the intention of renting those spaces short term, long term and/or reselling the property after making improvements on it. But what can you do to choose the best mortgage rates for you? Follow these 4 helpful tips when choosing a lender to finance your investment property:
- 1) Two Words: Credit Score
Before even thinking about choosing a lender, take a look at your credit score. When it comes to interest rates, credit does matter. A lower credit score means that you will have to pay more, eventually accepting a higher interest rate. Using a credit monitoring service or constantly reviewing your credit report will ensure you reduce any behaviors that negatively impact your score.
Refraining from purchasing anything on credit for a few months and paying off your debt consistently can help increase your points. Likewise, having an emergency fund for unexpected expenses will help prevent dire financial scenarios that can trigger your credit use.
2) Down Payment Means Everything
A word from ConsumersAdvocate.org:
“Don’t drain your savings. They’re there for a reason, of course, and you should use what you feel comfortable using for a down payment. If you do not have enough money for the type of down payment you wish to give, hold off on purchasing, or find alternative ways to have a lower down payment.”
That said, it’s common knowledge that mortgage insurance does not cover investment properties, so to secure a lender, a 20% minimum down payment is usually required. If you can aim higher, anywhere between 25-30%, chances are you’ll be eligible for a better and lower interest rate. If you don’t have that kind of cash, think things through. Some people opt for second mortgages or other routes that end up making the process more difficult and complicated for them.
3) Shop For Rates
Never assume that the first rate is the best option you will find. Lenders have their own deals and unique experiences. ConsumersAdvocate.org also states:
“While shopping for rates, lenders will check your credit history, causing a hard inquiry that will affect your score. However, you can request rates from multiple lenders during a 45-day period and your credit score will only take one hit.”
4) Budget Is Key
It might be common sense for many individuals looking to finance their investment
property, but other people fail the most basic task of all: understanding how much
money goes into purchasing your investment property. Is it only your monthly mortgage
payment? Nope. How much are the property taxes? Have you thought about
homeowner’s insurance? What about HOA, condo fees, maintenance costs and other
If you’re buying a fixer upper, the costs increase considerably. While there are honest
folks out there that possess good home repair skills, the house could require hiring
professionals and contractors to work on bigger remodeling projects. Those alone could
drain your bank. Make sure you assess every angle before deciding to go after your