Step by Step Guide to Investment Property Financing

Property prices have been on a steady climb with a few falls and that is proof enough that real investment is one of the safest long-term baits you have. Becoming a landlord is a smart way of generating a steady passive income. But then not everything good comes to you easily. you do need investment property financing to get started. When you don’t have several numbers of zeros in your bank account, a loan is your only way out. Investment property financing has several forms and each has some different criteria to fulfill. Choosing the wrong kind of investment property financing can greatly affect the success of your investment. So, it is vital to understand the ABCs of each alternative of investment property financing. Here’s what you do:

Property Financing
Property Financing

Step-1: Know Your Credit Profile: For any type of financing, this is always the first step and in a case of investment property financing, this is even more important as this allows you to assess your financial position and see if there are other matters that you need to address first before investing in property. Review your credit reports and consult an expert who may provide suggestions on how to take further actions. If you are not eligible for an investment property financing based on your credit profile, then your plan of property investment may come to a standstill.

Step-2: Decide What to Buy: Each property investor has a different plan of investment. Decide what is yours. Whether you want to buy a property and rent it, buy an old property and sell it for huge profits after fixing it up, put a contract on a home or condo before its construction is complete and the sell it for a profit, or any other plan. Think out of the box. You can choose whatever you like and whatever suits you. Whichever approach you decide upon, ensure that you understand the numbers including the financing cost, the down payment, the broker, repairs, etc and be realistic about your capability to afford the mortgage payments.

Step-3: Gather Your Documents: Be ready with all the financial documents you may require for the investment property financing. This includes:

  • Bank statements for the last two months
  • Investment account details
  • Retirement account statements
  • Pay stubs or salary slip of the last 2 months if you are an employee or your CPA and business license establishing your 2 years’ self-employment if you are self-employed
  • Driver’s license
  • Social security card
  • Bankruptcy, divorce, or separation papers, if applicable

Step-4: Keep a Down Payment Ready: It is extremely crucial to have enough money to pay the down payment up front when needed. Buyers are required to put down 20% of the home value as down payment. Also, it is important to note that the more money you can put down as down payment, the lower would be your interest rate on the investment property loan you take. So, do not apply for investment property financing unless you are ready with the down payment.

Investment in Property
Investment in Property

Step-5: Choose the Type of Investment Property Financing: Now that you are all set to apply for a loan, you need to consider the type of financing that would suit you the best. There are 3 options

  • Conventional bank loans: This is the type one usually takes while buying a house. This includes you providing the property you buy as a mortgage.
  • Fix-and-flip loans: this is the kind of loan you would want to choose if you are planning to buy a property, renovate it and sell it off for a huge profit.
  • Home equity loans: This is drawing on your home equity to receive investment property financing.

After all these steps are thoroughly completed, you are sure to receive the best-suited investment property financing and thereby profit a lot through real estate investment.


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