Although interest rates have remained fairly low throughout the past several years, since the economic recession, the days of “fast and easy” mortgage qualifying are long over – and because of this, it can be difficult for investors to obtain the financing that they need on their rental properties.
That being said, there are some things that you can do in order to pump up your borrowing power before you come to the table so that you can increase your options with lenders and secure the mortgage that you require.
First, having an ample down payment is always recommended. Because mortgage insurance doesn’t cover investment property, it is required that you have a minimum of 20% down. But, if you can bump up your deposit to 25 or 30% percent – or more – you’re likely to not only improve your chance of qualifying, but may also be able to obtain a better interest rate.
If you don’t have ample funds for an extra large down payment, going with a smaller bank or lender may help you to gain more flexibility in your borrowing. Oftentimes, by working with a smaller neighborhood bank as versus one of the large financial institutions can be more beneficial.
If you own more than one property, ensure that you have ample reserves in place for each one of them prior to going in for a new loan. This way, you can prove to the lender that, even with a potential vacancy, you will be ready to pay expenses for an ongoing period of time.
Certainly, because a borrower’s credit score is such a big factor in loan qualification, you will also want to be sure that you’ve paid down any stray debts that could be hindering your score and in turn, having a potentially negative effect on the interest rate that you’d be qualified for. Even just a quarter of a point difference on the rate of interest you obtain can make a substantial difference over the many years that you could own the property.
Owning investment real estate can be a great way to build wealth by leveraging your investment dollars – and, by having a property manager take over the day to day operations, you won’t be on call to manage your tenants’ needs. For more information on getting the most value out of your property, contact us.