More and more real estate investors today are using traditional lender programs. Since interest rates are continuing to slide, these programs have become the best option. Regardless of how popular these programs are, not all buyers can be approved. In order to be approved for these programs, you would need to meet the strict guidelines and provide a mountain of documentation. If you have a good credit score, a significantly large down payment, and a low debt to income ratio, they process should be easy. However, if you have the slightest little problem, you need to have everything in place before you consider making an offer on a property. It is important that you are organized with your loan materials. This will make the process much easier. There are 5 actions to take when you apply for a traditional mortgage loan.
Action 1 Review Your Credit Report
No matter what type of loan you are applying for, your credit report will be very important. If you are considering being financed through a bank, you should get a copy of your credit report. It is important to know your credit score and also to know what negative items and liabilities you have on your report. If it has been a while since you checked your credit report, you could still have old collections or erroneous accounts on your report. It is important that you start this process before you start making offers. The longer you wait the longer it will take for these things to be removed from your credit report. Anything on your credit score that should no longer be there can bring your credit score down. There is a big difference between a 690 and a 722. This difference can have a huge impact on your chances of being approved as well as on your interest rate.
Action 2 Deposit Funds ASAP
The loan guidelines for investment loans are different than the guidelines for a traditional single-family purchase. Not only would you need to have an excellent credit score, you would also need to have the funds for your down payment in a dedicated account for 60 days. If you are planning to pull the money for the down payment from a stock or bond, you should do so as soon as possible. These lenders have strict guidelines regarding how long the funds have been in the account, therefore, simply having the funds is no enough. There is no way around this guideline. If the money wasn’t there long enough, you would not be able to move on with your application. In addition to the down payment, there are lenders who would require that you have a few months of mortgage in a reserve fund. In the end, if you are planning to use a bank, you should get the necessary funds in order before you start looking at properties.
Action 3 Pay Down Your Debt
If your credit score is just barely at the acceptable level, you should try to give your credit score a quick boost. If you have old items on your credit report, you can have them removed within 30 days. This will only work with accounts that can be discharged. If you don’t have any, you should start trying to pay down your debt. When it comes to calculating your credit score, the amount of your available balance is second to your payment history. If your balance is low when compared to your maximum balance, your credit score will go up. You should first look into balance transfers. You should also use your savings to pay down accounts that have been maxed out or are close to it. If you can lower your debt, it will have a positive effect on your credit score.
Action 4 Review Your Bank Statements
When you apply for a loan, you would be required to submit at least two months worth of bank statements. Not only would you need to verify the deposit amount, you would also need to provide documentation of any large deposits or withdrawals. Many real estate investors are self-employed and a large portion of their income is cash payments. This can make verifying items on the bank statement difficult. If you are in this situation, you should start with any items that are over 500 and figure out where the funds went or where they came from and write it all down. If your offer ends up getting accepted, you would need to provide a letter of explanation for each item. You may also be asked for copies of your canceled checks. To be on the safe side, you should ask your lender to review your statements and tell you what you are going to need.
Action 5 Shop Around
Many loan programs have changed over the last decade. Today, just about every bank has the same set of programs for investors. There could be a slight change in the interest rates, however, the programs are essentially the same. If you are planning to take out an investment loan, you should shop around to see what is available to you. If you want to do this as quickly and as easily as possible, you should consider hiring a mortgage broker. Most brokers have access to dozens of banks who are offering several different programs. You should talk to at least three different companies before you commit to anyone. Rather than having the lender pull your credit report, you should go to your meeting with your credit score and bank statements in hand. You should look into the different programs and the guidelines. This will help you find a company that you can feel comfortable with.
There are several advantages of using lender financing. It is important that you find the best program for your credit profile. Once your offer is accepted, it is usually too late to switch gears. It is best to get everything in line before you start looking at properties.