The days of quick, easy financing are over, and the tightened credit market can make it tough to secure loans for investment properties. Still, a little creativity and preparation can bring financing within reach of many real estate investors.
The housing-market crash has become a distant memory, and home prices are looking healthy again. But does that mean there are good opportunities for investing in the residential real-estate market? Home values are climbing in most places.
But while interest rates remain low, the days of quick, easy financing are over, and the tightened credit market can make it tough to secure loans for investment properties. Still, a little creativity and preparation can bring financing within reach of many real-estate investors.
If you’re ready to borrow for a residential investment property, these five tips can improve your chances of success.
1. Make a sizable down payment
Since mortgage insurance won’t cover investment properties, you’ll need to put at least 20 percent down to secure traditional financing.
2. Be a ‘strong borrower’
Although many factors — among them the loan-to-value ratio and the policies of the lender you’re dealing with — can influence the terms of a loan on an investment property, you’ll want to check your credit score before attempting a deal.
3. Shy away from big banks
If your down payment isn’t quite as big as it should be or if you have other extenuating circumstances, consider going to a neighborhood credit union for financing rather than a large national financial institution. They’re going to have a little more flexibility. They also may know the local market better and have more interest in investing locally.
Mortgage brokers are another good option because they have access to a wide range of loan products — but do some research before settling on one.
4. Ask for owner "Vendor Take Back" financing
A request for owner financing used to make sellers suspicious of potential buyers, during the days when almost anyone could qualify for a bank loan. But now, it’s more acceptable due to the tightening of credit.
Most banks won't accept this as part of your financing so you will probably have use "Private" financing for the remainder of the mortgage if the vendor hasn't offered the full amount. Typical terms would be a Prime + 5 with interest only payments on a 1 year term. If you need advice on where to go for private financing feel free to call Jeff Parker's office for advice.
5. Think creatively
If you’re looking at a good property with a high chance of profit, consider securing a down payment or renovation money through a home equity line of credit, from credit cards or even via some life-insurance policies. Financing for the actual purchase of the property might be possible through private, personal loans, investors and/or individual private lenders.