Although it seems like the housing market is on the mend with prices in most areas rising steadily, there are now tighter controls on lending. This means that it is not as easy as it was a few years ago to get a mortgage nowadays, more so if it is for a rental property. even with interest rates decidedly low at the moment, it is clear that lenders wish to guard against a repeat of the circumstances that lead to the recent housing market crash. For those considering getting on the rental property market ladder, here are a few tips to help make your case in securing the necessary financing.
- Put down a large deposit – one of the best ways to secure any form of asset financing from a lender is to contribute a larger deposit.
Given that there is no mortgage insurance available for investment properties, adding a substantial amount to the deposit required will help sweeten the pot.
If it would take 20% to get financing, try to raise at least 25%. It helps demonstrate a stronger financial commitment on your part and may entitle you to a lower interest rate.
Having additional savings in the bank that can help cover installments whenever the property is unoccupied can also work in your favor.
- Boost your credit score – just as with any other type of financing being sought, it is advisable to clean up your credit score. The higher the number the better borrower you will seem, and the lower the interest rate you may be offered. You are entitled to a free credit report annually so take advantage of this to see if there are any discrepancies you can clean up to help boost your score.
- Buy a tenant occupied property – this is a good idea as you can prove to the lender the earning potential involved, and generate accurate debt to income ratios. There is also the benefit of being able to earn income right off the bat. You may even end up collecting the first month’s rent weeks before your first mortgage payment is due. For many this is a better option than securing a mortgage as an owner occupant and waiting a year before you can move out to rent it out. although the interest rates are higher, you can start making money off your investment immediately.
- Shop around – no two lenders are exactly alike. As much as more of them have become conservative in their lending, they still need this business to survive. The terms may vary from lender to lender so shop around to find out who is able to offer you the best mortgage terms. It may also be a good idea to consider several properties to potentially buy into. Depending on how good a credit score you have and your proposal, you may find yourself eligible for the financing of several properties.