Thursday, December 6, 2012

5 Steps to Securing a Mortgage For Rental Properties

Becoming a real estate investor makes it possible for you to benefit from semi-passive income coming in on a regular basis. While real estate investment can be pretty lucrative if done correctly, there are some hurdles that you'll have to overcome before you can get involved.

One of the most difficult parts of the process is coming up with the money to buy a rental property. Most people who do it use a mortgage, but qualifying for a loan isn't that simple.

Here are a few tips with CB Online to keep in mind when you want to be able to secure a mortgage for a rental property.

Get Some Cash Reserves
One of most important parts of this process is to accumulate some cash reserves. This means that you need to have some money sitting in a bank account or investment account somewhere for the lender to look at. When you are a rental property owner, things will come up unexpectedly. For example, the toilet may overflow and ruin the flooring in your unit. You might have to replace appliances or do one of a million different repairs. The lender will also want to know that you have enough money sitting around in a bank account that you could afford to make your mortgage payment for a few months if you lost your income. Things change and nothing is for certain with employment. Every lender is different when it comes to determining how much money you will need in cash reserves. As a general rule, just try to get as much as possible before you apply for the loan.

Boost Your Credit
When you apply for an investment property mortgage, the lender is going to want to see that your credit is good. You need a high credit score in order to get approved. You can get copies of your credit reports from all three of the major credit bureaus, Equifax, Experian, and TransUnion. Ideally, you should shoot for a credit score in the high 700's. If your credit score is not in that range now, consider paying down some of your debt accounts. Get in the habit of making payments on a regular basis to all of your creditors. You may also want to fix any errors that you find on any of your credit reports. It will be to your advantage to start working on your credit a few months before you try to apply for any loans.

Have a Down Payment
When applying for a rental property mortgage, the lender is going to expect you to have something for a down payment. The amount of money that you have to use as a down payment will vary from one program to the other. In most cases, you need to have at least 20 percent of the purchase price of the property to put down. This can be a big hurdle for many people to overcome, especially when you have to have cash reserves on top of that. Getting into the rental property game takes a big chunk of cash on the front end, but mortgages can help you minimize your own risk by using other people's money.

Work Situation
The lender is also going to want to see that you have a stable source of income. Typically, this means that you have some kind of a steady job that pays you regularly. They'll ask for copies of your W-2 forms so that you can prove that you make a certain amount of income. Regardless of whether you are self-employed or work for someone else, the bank will typically want to see at least two years of steady employment before you can get approved. If you don't have a stable work situation, it can be very difficult to get approved for any loans.

Shop Around
When you are looking for a rental property mortgage, you probably will need to shop around with multiple lenders before you make your decision. In some cases, you may be turned down by one lender because you don't meet their lending criteria. In others, you might be able to get approved because they have a different program that they use for investors. Some banks are better than others when it comes to working with investors. Search online as well as in your local market to find a lender that is willing to work with you.

If you'll keep these tips in mind, you should be able to improve your chances of getting approved for a rental property mortgage.

Guest Blog Article By:

Andy Boyd
Andrew writes about managing money and personal finances for various multinational companies. He is also a keen follower of technology

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