It can be a good time consider getting started in real estate investing. The housing market is on the upswing and mortgage interest rates are very low.
While it’s a great time to secure that interest rate many lenders are being very picky about who they will finance. To add to a real estate investment or even to begin real estate investing there are five vital areas to concentrate on.
Down Payment
The down payment can make obtaining a mortgage easy or make it an uphill battle. Any investor that has at least twenty percent down is going to have a much better interest rate and it will be easier to secure the loan. Bumping that number up to twenty-five percent can lower the interest rate even more, saving more money in the long run.
An investor who is unable to produce a twenty percent down payment could still find a lender that will finance them. It will be more difficult and a second mortgage may need to be taken out to cover the cost of the down payment.
While this is not ideal, it is a way to get into the real estate market.
Credit Score
One of the main factors a lender will consider is a person’s credit score. A credit score that is too low may stop the investor from obtaining a loan. The higher the credit score the better the interest rate the lender will provide. Most lenders like to see scores that are above 740.
A score that is lower than 740 will see an increase in the interest rate. There are fees that can be paid to avoid this increased interest rate. It is always a choice to simply pay the higher interest rate, as well.
Lenders like to see that they are investing in someone that handles their money well. Having a good amount of money in a savings account and showing a consistent ability to pay bills and save will help a lender feel more secure in the loan.
If there are other investment properties that are already owned at least six months’ worth of money to upkeep the property should be put away. This will show that the investor is able to take care of their properties even when no one is renting.
Avoid Big Business
With any issues with down payment or a lower credit score, an investor should try a smaller neighborhood bank. This can be a good alternative to a national chain. A smaller bank will be more invested in their community and more willing to work with someone who explains their financial situation clearly and openly.
If a local bank is not a good fit, try a mortgage broker. A broker will have different loans that they have access to, which can benefit an investor. Be wary about which broker to choose. Always research their background, if they have a college education, if they are working with any organizations, and anything that would indicate whether they are a secure investor.
Owner Financing
Owner financing is not as common as buying a property with a mortgage through a lender. With that being said, it is not unheard of. As long as the investor approaches a property owner with clear goals it can go well. Tell them exactly what amount will be financed and under what terms.
It is really up to the seller to decide if they are going to take the chance and agree to owner financing.
Borrowing from Other Areas
If really desperate for a down payment some people have used alternative routes to get the money. Using a home equity line of credit on an existing property can provide the proper cash flow to make a sizable down payment.
Even borrowing from a life insurance policy can give an investor the capital needed to begin their investment. Once the money is made back it is important to replace it in any account that has been borrowed from. Many investment accounts do not penalize the user from borrowing money so it is a good resource.
Starting the journey of real estate investing can be a long and hard process. Unless an investor has the cash laying around to purchase a property outright, they will need to have a mortgage. To get a mortgage a person’s credit must be good, they should have a sizable down payment, and they can concentrate on using a smaller bank or owner financing to obtain properties.
