A Few Tricks of the Trade
Financing your first investment property can be a daunting task—but if done correctly and by working with the right people, it can be just as beneficial and rewarding.
By taking advantage of the currently low interest rates, you can receive rates and pricing that you wouldn’t be able to get just a few years ago. The housing market always goes through price fluctuations and right now housing prices are down, but bound to recover. This is the perfect time to buy while rates and pricing are low and there are renters out there in need.
First things first, check your credit early for any errors you’ll need to address. The better your credit score is, the better your chances are for being approved for an investment property loan. Once your credit is reviewed, analyze your finances to make absolutely sure that you are ready to take on an investment property. Also remember that investment properties tend to require larger down payments and stronger finances than is needed for a primary residence.
Your loan-to-value (LTV) is a ratio that expresses the amount of money being borrowed to the appraised value of the property. If your LTV is 75% or less, you will need a FICO score of at least 720; an LTV above 75% would require a FICO of 740. In either case six months PITI in reserves is required. (See chart for more details.)
You may also want to think about securing a home equity line of credit from your own home to cover any large costs or repairs that are needed. Contact your 1st Advantage Mortgage loan officer for more questions and to discuss the different scenarios and options out there.
Next, choose the type of investment you’d like to purchase. Investment properties can include anything from vacant land and rental houses to condominiums or commercial properties. After deciding what type of building you’ll buy, research the area that fits best for your intentions and goals. Visit these properties, but also research the surrounding area to make sure the neighborhood offers good schools, close transportation, shopping areas and entertainment venues that renters will enjoy and prosper in. The community is just as important as making sure the property is a good one, as you’re investing in the surrounding area as much as the building itself.
Also, make sure not to overpay on the property by ensuring that your rental income from the investment will cover your monthly mortgage payment as well as taxes, insurance, maintenance and repairs.
If you’re cut out for the work, purchasing investment properties can be quite profitable and can turn into a steady second income for years to come.