Investment properties can provide several benefits, including passive income, potential tax benefits, and appreciation in value over time. Investment properties are not used as primary residences but rather as income or profit-generating assets. Securing a mortgage for an investment property can be more challenging than securing a mortgage for a primary residence.
To help you secure a mortgage for your investment property, here are six steps to follow:
1. Determine your investment goals: Before you start looking for a mortgage, you need to have a clear investment goal. Determine the type of property you want and align it with your short and long-term goals. This will give you an idea of the purchase price of the property, closing costs, and any renovations or repairs you plan to make.
2. Check your credit score: A credit score is a crucial factor in securing a loan for your investment property because it shows lenders you can repay the loan. Lenders use credit scores to assess your creditworthiness and the risk associated with lending you money. A high credit score indicates that you have a history of making timely payments and managing debt responsibly, which makes you a lower risk to the lender. This will lead to better mortgage rates and terms. If your score is low, take steps to improve it before applying for a mortgage.
3. Shop around for lenders: Different lenders offer different mortgage rates and terms, so shopping around for lenders allows you to compare different loan options to find the best terms, interest rates and fees. Look for lenders that specialize in investment property mortgages and have experience working with investors.
4. Prepare your documents: To apply for a mortgage for your investment property, be prepared to provide documentation, such as proof of income, tax returns, bank statements, and details about the property. Lenders require documentation to verify your income and determine the value of the property.
5. Make a down payment: Investment property loans require a larger down payment than owner-occupied loans because they are considered higher risk. Most lenders require a down payment of at least 20% for an investment property mortgage. Make sure you have the funds to make the down payment.
6. Get pre-approved: Pre-approval can help you understand your borrowing potential and give you an advantage in a competitive housing market. It also shows lenders that you are serious about purchasing the property.
7. Close the loan: Once you have selected a lender and received a loan approval, you will need to complete the loan closing process. This involves signing the loan documents and paying closing costs, such as appraisal fees, title insurance, and other fees.
Securing an investment loan requires careful consideration and planning. To get the best loan for your situation you need to have a good credit score, shop around for the best terms and interest rates, and provide all necessary documentation to the lender. It is also important to work with experienced professionals like our mortgage brokers at Source Mortgage Centre. Contact us today to find out how we can help you!