Always read the fine print
In your quest for the best rates offered by various lenders, you should always read the fine print. Combing through all the documents or contracts will allow you to discover the additional costs that may arise as well as the significant fees. These may include unexpected costs resulting from the number of existing mortgages or loans you already have.
Make a larger down payment
If possible, you can put a larger down payment on your investment property, thereby reducing the interest rate. To further reduce the rate, you can also pay an upfront fee or points. These moves could save you thousands of dollars on your repayment total, if you apply for a larger loan and plan to keep the property for a long time.
Depending on the loan program and lender in question, you might put down as little as 3% on a conventional mortgage for a principal residence. If, however, your down payment is less than 20%, you will need to pay for private mortgage insurance, or PMI. PMI will protect your lender from financial loss if you fail to repay the loan. For investment properties, the PMI does not apply. This will require you to make a larger down payment of at least 15-20% to finance a rental property. Multi-unit investment properties are an example of a property that requires a down payment of at least 25%.
Check your credit score
When obtaining a mortgage for your investment property, you will want to check your credit score. This is an important step to take in the months leading up to your property search. By checking your credit score, you will learn about the different types of loans you may be eligible for. If your credit score has been damaged, now will be a good time to take the necessary steps to improve it. The best way to do this is to pay off as much of your debt as possible, or better yet, pay it off completely.
When financing a rental property, lenders will typically require a credit score of at least 620. But if you want the best terms and interest rates, you’ll want a credit score of at least 740. Higher than this is considered a very good credit score.