How to Get Preapproved for a Home Loan for an Investment Home
Investing in rental or vacation properties is a good way to build equity and build a reliable second or even full-time income. Getting preapproved to purchase an investment home requires a good credit history and a substantial down payment. Before you decide to get a loan, check out both your credit and the property and make sure it's worth investing in.
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Check your credit score and report. Before you go to the bank and ask for preapproval it's important to know what they're going to find out. A credit score below 740 is going to pay a higher interest rate and is likely going to require a larger down payment, according to Todd Huettner of Huettner Capital in Denver. "Below (a score of) 740, it can start to cost you additional money for the same interest rate. Below 740, you will have to pay a fee to have the interest rate stay the same. That can range from one-quarter of a point to two points to keep the same rate," Huettner says. A free copy of your credit report is available to you online at AnnualCreditReport.com once a year or at anytime if you were denied credit. However, you must purchase a subscription to the service in order to receive your actual score.
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Save enough to put at least 20 percent down on the property in order to secure financing. Banks will look even more favorably at borrowers who have 25 percent or more to put down on a home.
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Try and get a second mortgage on a property you already own if you need the full purchase price amount or you need the down payment. Most lenders don't like to do this, but if you have a good relationship with your bank and you are a proven investor, you may be able to get preapproved this way.
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Consult with unconventional lenders to get a mortgage. If you don't have enough money for a down payment or you have not-so-great credit, some finance companies will help you purchase a property they deem as a good investment. In order to get preapproved you must put together solid financial information on the investment property you intend to buy, including your expected income and how you arrived at that number. For example, if you are purchasing an apartment building that already has renters and leases, you'll be more successful than if you are renovating an old factory to turn into apartments.
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