Are you interested in investing in real estate? Are you wondering how to best finance your purchase? Do you have concerns about making the wrong decision?
It’s natural to have questions like these. It’s also natural to have concerns about making a decision that doesn’t work for you over the long run. But on the plus side, there are steps you can take to ensure yourself of making an informed choice.
Here are five tips to follow when financing an investment property:
1. Make a sizable down payment
The more money you have for a down payment, the greater chance you have of an approval. Furthermore, this helps you avoid private mortgage insurance and lower your monthly payment.
Just the same as the mortgage on your home, do your best to save a minimum of 20 percent.
2. Improve your credit score
Your income and credit score are both important to lenders. You may not be able to immediately boost your income, but you can take steps to move your credit score to the next level.
Pay down your debts. Make all your payments in full and on time. Review your credit report for mistakes.
Give yourself three to six months to track your credit score. You may be surprised at how much progress you can make in a relatively short period of time.
3. Talk to a loan officer or broker
You can do a lot of research online, but that doesn’t mean you have to manage the entire process yourself. Talk to a local loan officer or broker about your investing goals and financial circumstances. Not only can they point you in the right direction, but they may also be able to help you secure the best loan for your circumstances.
4. Use your home’s equity
Do you have equity in the home you live in? Are you comfortable with the idea of tapping into the equity for a down payment? Could you use the equity to purchase an investment property outright?
There are many benefits of a home equity loan, including a greater chance of approval and a competitive interest rate.
5. Ask about owner financing
It’s not always an option, but it’s worth asking. You may find that the owner is more than willing to consider owner financing, especially if they’re in a hurry to proceed. Owner financing often leads to more favorable terms and conditions, so it’s always worth asking.
Do you have any other tips for financing an investment property? Which of these tips would you put the most emphasis on?