How to get a mortgage for your investment property
Always read the fine print
In your pursuit of the best rates offered by various lenders, you should always read the fine print. Combing through any documents or contracts will allow you to uncover extra costs that may arise as well as large fees. These may include unforeseen costs resulting from the number of existing mortgages or loans that you already have.
Make a larger down payment
If possible, you can make a larger down payment on your investment property, thereby reducing the interest rate. To further lower the rate, you could also pay upfront fees, or points. These moves could save you thousand of dollars from your repayment total, if you apply for a larger loan and are planning to hold onto the property for a long time.
Depending on the loan program and the specific lender, you could put down just 3% on a conventional mortgage for a primary residence. If, however, your down payment is under 20%, you will have to pay private mortgage insurance, or PMI. PMI will protect your lender from financial losses if you default on the loan. For investment properties, PMI does not apply. This will force you to make a larger down payment of at least 15-20% to finance a rental property. Multi-unit investment properties are an example of a property that requires a down payment of at least 25%.
Check your credit score
When getting a mortgage for your investment property, you will want to check your credit score. This is an important step to take in the months leading up to your property search. By checking your credit score, you will learn the different kinds of loans you could qualify for. If your credit score has been damaged, this will be a good time to take the steps necessary to improve it. The best way to do this is by paying down as much of your debts as possible or, better yet, paying them off altogether.
When financing a rental property, lenders will generally require a credit score of at least 620. But if you want to get the best terms and interest rates, you will want a credit score of at least 740. Higher than that is considered a very good credit score.
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