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5 Tips for Financing Investment Property

If you’re ready to seek out financing for your residential investment property, these five tips can improve your chances of success.

1. Have a down payment

Mortgage insurance won’t cover investment properties, so you need at least 20% down to secure traditional financing for them. If you can put down 25%, you may qualify for an even better interest rate.

2. Be a ‘strong borrower’

Although many factors ­­ among them the loan­to­value ratio and the policies of the lender you’re dealing with ­­ can influence the terms of a loan on an investment property, investors should check their credit score before attempting a deal. It will have the greatest impact on a loan’s terms.

3. Shy away from Big Banks

If your down payment isn’t quite as big as it should be or if you have other extenuating circumstances, consider going to a neighborhood bank for financing rather than large, nationwide financial institutions. They’re going to have a little more flexibility.

4. Ask for Owner Financing

A request for owner financing used to make sellers suspicious of potential buyers, because almost anyone could qualify for a bank loan. But these days, it’s become more acceptable due to the tightening of credit. However, you should have a game plan if you decide to go this route. You have to sell the seller on owner financing, and on you. You need to present a picture to someone so they’re not filling in the gaps with their worst fears.

5. Think outside the box

If you’re looking at a good property with a high chance of profit, consider securing a down payment or renovation money through home equity lines of credit, from credit cards or even from some life insurance policies. As always, research your investment thoroughly before turning to these riskier sources of cash.