Now that you’ve found a property, it’s time to start looking for financing. Talk to several lenders, compare terms and rates and decide if this is someone you can comfortably work with. Yes you need to like them, but you also need to make sure they are someone who can help you understand all the issues associated with purchasing investment property. Pick someone you trust and find easy to work with.
Here are the basic steps you will take with your lender to secure financing for your investment property.
1. Analyze the investment property cash flow that you will need to service the proposed debt.
2. Fill out a business loan application.
3. Seek underwriting approval and credit approval from the proper authority at the lending institution.
4. Pending approval, sign a commitment letter outlining the terms of the loan. Your lender will determine the term, interest rate and amortization the property can support.
What interest rate you’ll qualify for will depend on several factors, including the fair market value of the property and your credit score. Your lender will discuss your options with you and determine what works best.
5. Your lender will order an appraisal. This can take one to two months to complete, so you need to be patient.
6. Seek legal counsel to prepare documentation including a title search and loan documents.
Remember, there’s a big difference between residential and commercial loans. In addition to taking longer to complete, they also have more expensive closing costs. Also, getting approved depends, in part, on the profitability of the property, rather than just your personal financial situation.
Want to learn more about financing an investment property? Download our free Investment Property Ownership eBook today!