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TERMINOLOGY
Getting an investment property loan is going to work differently from getting a traditional mortgage. If you want to purchase a property, this may be a necessary step in the process. Here are the basics of getting an investment property loan.
Shop Around
The first part of this process should involve shopping around. Investment property loan interest rates can fluctuate greatly from one lender to the next. If you want to make sure that you get the best deal, you will want to investigate multiple lenders before you commit to one. This can also help you if you are trying to get approved. Every lender has different lending criteria, and some of them are easier to work with than others.
Apply
The next thing that you will need to do is apply for a loan. After you have located a lender that you feel comfortable working with, they will provide you with a loan application. For this process, you are going to need to give them personal information such as your name, your address, your Social Security number and your employment information. Typically, you can complete this process in a short time.
Verification
At this point, the lender is going to want to verify everything on your application. They are going to pull a copy of your credit report and make sure that you have a good credit score. They are also going to evaluate your income and see if it is sufficient for this type of loan. One key difference with investment property loans is that you are going to have to have more income than you would with a traditional mortgage. With this type of loan, you are going to have to prove that you have enough income to pay for your home mortgage and the investment property's mortgage at the same time. Some lenders will allow you to count a percentage of the rental income, if there is any, towards your income. However, other lenders may not allow this. Many of them will also want to see that you have a substantial cash reserves. They may want you to have enough cash on hand to pay for the mortgages on both of your properties for a certain number of months.
Down Payment
The lender is also going to want to see that you have enough money for a down payment. With investment properties, you will typically have to put up at least 25 percent and in some cases as much as 35 percent. Investment property lenders want you to put more of your own equity into the property since this is a riskier loan. Many investors fail to take into consideration just how much money they are going to have to come up with out of their own pockets for this process. In some cases, you may be able to find a lender that does not require a large down payment, but these situations are rare.
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