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If you are actively searching for investment real estate, it’s a good idea to be aware of the current state of the investment property mortgages market. While credit remains relatively much more difficult to obtain compared to several years ago, new banking regulations have made things even tighter in the mortgage arena since the beginning of the year. So you’ll need to have your creditworthiness all lined up before you try to close on any deal. You certainly don’t want to waste your time searching for a good investment property deal, only to find you can’t obtain the requisite financing.
Increased credit tightening
The most notable change in the credit markets this past year has been an intense scrutiny (and concomitant tightening of documentation) required on all residential investment property mortgages. Private investment from Wall Street has all but dried up completely for riskier loans, and as such, lending in most areas of the country will not allow for any form of “no documentation” (also known as “stated income” or “low documentation”) types of mortgage financing. Pejoratively, these loans have been called “liar loans,” mainly because one could lie about one’s income with impunity in order to qualify for the loan.
Currently, even stated income investment property mortgages that can be had allow lenders to audit your past federal tax returns (usually in case of default) to prove you were not truthful on your loan application. This further places more protection into the banking system to further avoid the wide use of fraud that contributed so strongly to the real estate collapse of the recent past.
Make your mortgage lender your ally
Armed with this investment property information, it is always advisable to discuss your financial situation with a mortgage lender before you start to locate your next investment property deal. This way, if you are self-employed, for example, you’ll be able to prepare in advance what documentation you’ll need for the future. You’ll know what amount of mortgage you can comfortably qualify for, and be able to plan for future financing as well. You can also get prequalified and preapproved for any investment property mortgage loan now, rather than waiting until you have a great deal in place, and then finding you don’t qualify. In that scenario, you could end up potentially losing out on the deal (and all the work you put in on it) since you couldn’t secure your financing in a timely manner.
So try to work with a local lender you’ve worked with before, get to know them, and let them advise you on your best plans of action for qualifying for your next investment property mortgage. Once you, do, you’ll be able to return to them, and cut through much red tape in the process for all subsequent investment property loans you will be trying to obtain.
photos courtesy of worldpropertychannel.com, allstate.com, realtybiznews.com, socalfools.org