Are you looking to obtain a loan for a rental property?

Purchasing a rental property means considerable potential for the return on your initial investment. Many people across the county have used property investments to boost their monthly income and grow their long-term wealth.

But there are always going to be some requirements that you need to tackle on your way towards becoming more financially independent. That’s why it pays to introduce yourself to the various steps necessary to get a loan for the desired rental property.

In the following paragraphs, you’ll learn all about getting a loan for your rental property. Follow these recommendations to get a better starting position for obtaining your rental property mortgage.

1. Understand the lending limits

Is it your first loan? Maybe you already have a few loans racked up? Remember that most lending institutions allow no more than four loans. Sometimes it may be less as it depends on the number and type of the existing financial responsibilities.

2. Obtain the required credit score

Rental property purchases require a higher credit score compared to regular residential properties. The usual minimum for home loans is 580. But the cut-off limit for investment properties tends to be 740.

This fact doesn’t mean that you are completely out of luck if your credit score is less than 740. You should keep in mind that the associated terms might be stricter. For instance, you could face interest rates and fees that are higher than average.

3. Partner up with an investor-friendly lender

Not all lenders have an open attitude towards property investors. One of the requirements of getting a loan for a rental property is finding a good match for your rental mortgage needs.

However, it’s not about blindly checking the lenders’ websites as you try to find signs that they have a positive attitude towards rental investments. Instead, aim to take control of the process. Start by asking plenty of questions. Use the following guide for inspiration.

    • What is your loan term proposal?
    • Do you currently have active mortgage contracts with investors?
    • What does the investment property funding timeline look like?
    • What is the maximum number of loans you offer to an individual investor?
    • How much prior experience do you have with investors?
    • What is the amount for the down payment required by your company?
    • What are the extra fees that I should know about?
    • How do you differ from the other investor-friendly lenders?

4. Prepare all the paperwork

You are required to prepare the documents necessary for the loan application. Every type of mortgage requires you to show proof of income. Financial companies want to see more than that when it comes to rental properties.
Many of the lenders want to see your income statements from the previous two or three years. They will likely ask for tax returns and W-2 forms as well. To expedite the process, ask for the requirements in advance and hand in the documents along with your main application.

More points to keep in mind

The common mistake of beginner investors is only applying with a single (or two, at most) lenders. These investors are going to accept whatever is thrown at them. But that’s not the optimal strategy.

Apply with numerous lenders on the market to really see what your current options are. You may discover that many of the lenders offer similar terms, but there are a few ones who provide exceptional deals.

If you fail to get in touch with multiple lenders, it’s easy to miss out on some of the best terms on the market. Most investors skip this step because they are afraid that contacting many lenders threatens their credit scores.

That’s not true, though. You need to ensure that all of your applications fit a 2-week timeframe. This oft-misunderstood feature of the FICO credit score ensures that all of your applications are interpreted as a single inquiry. Just make sure that you don’t exceed the time limit.

In a Nutshell: Getting a Loan for Rental Property

Smart investments in rental properties can equip you with the necessary capital for sustaining a passive income. This steady stream of investment return helps you grow personal wealth down the line.

Make sure that you get all the requirements checked before obtaining a loan for your desired property. Among other things, ensure a minimum credit score, get a list of investor-friendly lenders, and prepare all of your documents.