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Property Investment Loan - Things to Know When Applying for Your Property Investment Loan

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With today’s economic slump and the way the housing prices are descending, many are looking to make money on the housing market by purchasing investment properties. Not only are the housing prices dramatically lower, but there are also lower mortgage rates that have created an open door for an investor, experienced or not, to bank on. If you are one of these investors that is thinking about purchasing an investment property, you must understand that property investment loans vary from a standard home mortgages that many people carry on their residence.

Before even beginning to apply for a property investment loan, there are a few things to remember. Check your credit for mistakes and items that may need to be addressed. Even if you have a less-than-perfect credit score, however, do not let it stop you from applying. Lenders are approving lower credit scores these days. If you are not happy with your credit report, do not do anything drastic like close accounts or pay things off. Talk to an expert. Some of the things you think will improve your credit report may make it worse. Even if you do not get approved for the loan, there are other ways. Try to find an investor partner that will go in on the property with you. There are people out there that are looking for a good investment but lack the time or the expertise to buy a property.

Get pre-approved. Before you even begin your house search, get pre-approved for a property investment loan through a broker or lender and request it in writing. This gives the seller assurance that you will not go under contract, only to not be approved.

Decide what you are buying before you apply for a property investment loan. Second homes can offer better financing, but it depends on where the property is located and what you intend to do with it. A tax advisor will be helpful when deciding if it would be better to buy a second home or an investment property. One thing to remember when deciding this is to call it what it is! Do not buy a property and let someone talk you into saying that you will live in it when you do not.

Make sure that you understand the numbers. Investors will purchase an investment property for a number of reasons ranging from a fixer-upper that is transformed to a big profit, to a vacation home that they may rent from time to time for a small profit. Whatever you decide to use your investment for, make sure you know the cost of financing, how much your down payment will be, advisor fees, repairs and any other cost.

Some property investment loans will allow for 100% financing. This is great if you do not have the cash to supply the down payment. One way to only have a small down payment is to get a first mortgage for 80% and a 10% home equity. Here, you have 90% financing. Some people who have the cash to make the down payment, however, do not want to tie up that cash in a new property. There is a way around this. You can open a certificate of deposit with the lender using the down payment funds, and still borrow 100% of the purchase amount. When the investment property achieves the percentage equity of the down payment, the certificate of deposit is released back to you with accrued interest.

When you actually go to a bank and apply for a property investment loan, you need to be prepared to provide some paperwork. This includes; two month’s bank statements, investment account statements and retirement account statements, the last two pay stubs, driver’s license, social security card, bankruptcy and divorce or separation papers. If you are self-employed, you may be asked for a business license, a letter from your CPA establishing two years’ self-employment, last two year’s tax returns, business bank statements and business financial statements.

It might be helpful to have an accountant with you that understands investment property tax strategies and a real estate attorney to make sure the contract is worded properly. More professionals that you need on your “team” is a mortgage professional, an attorney that understands asset protection and an advisor with investment property experience who can help identify potential problems.

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