As you begin your real estate investing journey, one of the things you’ll want to do first of all is to ensure you have financing in place. It’s obviously an important factor because unless you have sufficient cash reserves to cover your first investment purchase, a loan is going to be necessary. You won’t get very far without one.
There are some things that you should know about getting a loan for real estate investing before you go ahead and apply for one. If you’re going to start investing, it’s worth doing it properly and making sure that the loan you apply is going to work for you and that you approach it in the right way. Read on to find out more.
Make Sure You’re a Strong Borrower
Before you attempt to get a loan, you need to make sure you check your credit score. There are many things that lenders will look at when judging you as a borrower, but your credit score will be the most important of all. You’ll have to accept a higher interest rate if you don’t have a great credit score. But there are lots of small things you can do to improve it.
Even steps such as making sure your details are up to date can help you to boost your credit score if it’s not quite up to scratch. Other things you can do to prove that you’re a strong borrower include having cash reserves to back you up. Having easy access to available cash will make you more appealing to lenders and that’s got to be a good thing.
Don’t Only Consider Big Banks
Big banks can sometimes offer you what you’re looking for. But they tend to be best for people with good credit scores and big down payments to make, which we’ll talk about more below. If that’s not the situation you’re in and you’re not ready or able to put down a big down payment, you should consider looking further afield and potentially shunning the bigger banks. After all, there are plenty of other lending sources out there to consider too.
Neighborhood banks and small lenders, or private money lenders are often able to be more flexible than the big banks if you want to buy homes for cash. They can look more closely at the specifics of your situation and offer you a better deal on that basis. That’s something that bigger banks won’t always be as willing to do because they have rules and regulations that offer very little in the way of flexibility.
Put Down a Big Down Payment if Possible
The bigger the down payment, the better it’ll be for you over the long-term as a real estate investor. Lenders prefer borrowers who put down a bigger down payment because it’s safer for them. And because of that, they’ll be happy to give you a better deal involving a more preferential interest rate for you. From a financial perspective, that’s something that you won’t want to miss out on, so it pays off to make a bigger down payment.
Of course, it’s not always possible or viable for you to make a huge down payment, but you should make it as big as you can. A 20% or 25% down payment will help you to get a really good interest rate attached to your real estate loan. But even if you can make a 15% down payment, it’ll make a difference.
Choose an Investor-Friendly Lender
If you’re heading to a broker or speaking to lenders directly, you need to think about whether they’re investor-friendly. A lot of people and organizations in these professionals simply don’t understand the real estate investing landscape and that’s something that can impact the outcomes for you. Ideally, speak to people and lenders who understand the needs of a real estate investor.
Direct lenders tend to be better than brokers when you’re seeking a loan as an investor. Most brokers focus on regular real estate loans and don’t know much about the specifics of investors. And don’t be afraid to ask questions. Ask if they’ve worked with real estate investors before going any further. Find out what they can offer you and judge each option on its own merits; that’s the best way to choose a loan.
Real estate investing could be the investment strategy that you’ve been looking for. Making a success of it won’t be easy, but many people like Doug Hopkins of Property Wars manage to do very well as a real estate investors and there’s no reason why you can’t too. But be sure to take into account the advice above when getting a loan for real estate investing.