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Investing in real estate is known to be one of the best long term investments anyone can make. One of the main reasons for this fact is the built-in leverage any individual can get through a loan. However, getting approved for a loan for your investment property is not always as easy as one would assume. There are several different avenues to take when looking at financing options for your investment. Choosing the wrong loan or going in blind can have a significant impact on your success, so it is important to do the proper research before deciding how to finance your investments. Here are a few tips to consider:

Check Your Credit Score

As with most other financing plans, your credit score can make or break your eligibility for a loan. The better your score, the lower your interest rates and lenders fees will be. Because borrowers are more likely to default on investment loans than their home owners loan, LTVs are usually built with caution and can be lower than mortgage loans. If your credit score is below 740, anticipate paying additional fees to keep the interest rates low.

Choose the Right Loan Option

There are a few different options when it comes to finding the best loan for your investment. Between conventional and fix-and-flip loans to drawing upon your home equity, it’s crucial to do plenty of research to discover what the best option is for you. Conventional loans are typically going to require a minimum 20% down payment. Lenders will also review the borrower’s credit score, assets, and income. Investors who are looking to turn a quick profit through a house remodel may choose a fix-and-flip loan. This type of loan is short-term and is secured by the property. Occasionally, these loans may be easier to qualify for as they are based more so on the profitability of the property. Finally, a third financing option is to delve into home equity through a loan, cash-out refinance, or HELOC.

Choose the Right Lender

Choosing the right lender is paramount to receiving the best deals and avoiding hiccups during the process. Take the time to read reviews, ask around, and gather as much information as you can about lenders to be certain you choose someone who is credible and knowledgeable. Banks are not the only lender in town. You can choose a direct lender easily if you have a down payment, sufficient credit score, and proof of employment. You’re likely to have a more transparent experience going this route, as it cuts out the middleman and allows you to work directly with the person or group actually lending you the money; some even specialize in underwriting loans specifically for real estate investing which means the pre-approval and approval process may be much easier. And while the option still exists, I do not recommend working with a mortgage broker who generally middles the transaction. If you are serious about investing in real estate, you have to be serious about research and that includes finding the best loan for your needs both now and in the future and therefore you must research your options and plan ahead.