How to Finance Your First Investment Property
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How to Finance Your First Investment Property
Buying your first investment property can often seem like a complicated and daunting task. Whether you are buying a single-family residence, or a thirty-unit apartment building the process is very similar to buying your own residence. Your mortgage professional will present information about you and the property to a lender. The nature of the information presented and the types of loans available are important for the first time investment property buyer to understand.
It is very important that your mortgage professional is experienced at funding investment property loans. Take some time to ask them if they have funded investment property loans before? Do they understand how to underwrite the property's cash flow? Can they recommend several loan scenarios, from which you can choose? Do they discuss your "Plan for the property"? In other words, are they knowledgeable and do they have your best interests in mind?
Once you are comfortable with your mortgage professional, ask them to get started to "Pre-qualify" you for a loan. You will want this level of confidence before making an offer to purchase a property, and most sellers want to know you have taken steps to make sure you will get the required financing.
It's all about CASH FLOW!! The wonderful thing about buying an investment property is that it should "pay the bills" of the property including the mortgage, utilities, taxes, insurance, and pay you as well. With this in mind, you and the lender will want to make sure the property's cash flow is acceptable. Your mortgage professional will help you gather the appropriate information. It should include most or all of the following:
Next, you will present information about yourself to the lender. This component of the loan package is the same as you have presented to your mortgage professional when buying your primary residence. It will include information about your income, liquidity and other assets, and your credit. If you are self-employed or derive income from multiple sources, you should provide copies of your last two Federal tax returns. If your sole source of income is a salary, your last two years' W-2s should suffice. Do not be afraid to fully disclose all of your personal financial information, as it allows your mortgage professional to provide you the most honest and best loan scenarios for you.
Your credit score is very important!! The better your FICO credit score, the more and better loan options you will receive. If you are not sure what your credit looks like, go ahead and ask your mortgage professional to pre-qualify you for a loan. They will pull your credit, and make sure it is correct. In this age where identity theft is more common, it is a good idea to make sure your credit report is in order. If there are issues or problems, you can take steps to correct or improve your credit.
Having been in the finance industry for almost twenty years, I have seen more people accumulate wealth in real estate than even the stock market. They have done so by acquiring investment properties. Whether you buy and hold for the long term, or buy and sell after a few years is part of your "Plan for the property". Your loan should work with that plan, and your mortgage professional can help you acquire that first investment property. So get started and speak with a professional that can help you understand the process, and get you pre-qualified for your first investment property purchase.
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