To properly execute Jason Hartman’s wealth-building strategies requires the ability to obtain long-term financing at good rates. This makes your credit rating of critical importance when setting out to create an income property portfolio. Here are a few facts-of-life about dealing with lenders in the real estate game.
Pump Up the Down Payment
Since mortgage insurance won’t cover investment properties, be prepared to come up with at least a 20% down payment, though 25% earns a better interest rate. With a second mortgage on a property becoming increasingly hard to come by, expect that you’re going to need a chunk of cash to get the best deal.
Credit Score Matters
A credit score below 740 will likely cost you money in terms of a higher interest rate or a fee to keep a lower rate. And if you allow your score to drift too far down there’s a good chance you won’t be able to get a loan at all. Don’t let this scare you – let it motivate you to value your credit score like valuable diamonds.
Don’t Forget Neighborhood Banks
The truth is that multi-national conglomerate banks like Bank of America are quite inflexible when it comes to a borrower who might be a perfectly good risk but has extenuating circumstances. If you fall into this category, it could be worth your while to take a walk down to a locally owned financial institution. You might find they have more flexibility with the money they loan.
Seller Financing
Seller financing used to mean that you were a poor slob who couldn’t get traditional financing. These days, with lending standards prohibitively tightened up and many sellers highly motivated to move their property, it’s a legitimate way to get a deal done so don’t be afraid to ask.
And if all the preceding strategies fall through, but you still have your heart set on a particular income property deal, it might be time to get even more creative. Don’t forget other sources of cash like a home equity line of credit, credit cards, or even cashing out a life insurance policy. We don’t make these suggestions lightly because racking up thousands or tens of thousands of dollars in credit card debt should only be done after careful consideration, but these are options to at least take a look at when all else fails. (Image: Flickr | 401(K) 2013)
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