While acquiring real estate financing has become more challenging, there is also lesser competition for the capital that banks are willing to lend. Having the right mix of savings, credit score and debt-to-income ratio will improve your chances of securing a loan for investment properties. See the following article from JasonHartman.com for more on this.
Investors today are obviously faced with new obstacles to financing. These new restrictions are part of the “hangover” from the easy lending frenzy of the recent past. But obtaining financing is not an impossibility. In fact, paradoxically the opportunities for investors who qualify for financing are better than ever, since the field of competition has been narrowed.
Who Is The Ideal Investor Client Right Now?
Ideally, prospective investors have at least 6 months of reserved savings with a debt-to-income ratio of no more than 45%. Credit scores of 700 or greater are preferred, and for rental investors a score of 750 or higher is the target. Clearing up the confusion of how that number is determined with 3 separate credit reporting agencies, the simple answer is that the middle score is used. Ideal investors are interested in “turn-key” rent relationships with the objective of cash flow, tax advantages, and property appreciation.
Obstacles to Obtaining Financing
“Maxed out” credit cards can pose a problem when credit card companies lower limits on available balance. This is deemed a risk factor for rental investors rather than primary residence buyers. Refinancing a home for the purpose of rental investment is one option but investors must be wary of over-extending themselves. Lenders are imposing greater restrictions too, and conventional loans are extended for no more than 80% of a property’s value.
Defining “Seasonal Requirement” and “Rehabbing”
A seasonal requirement refers to the length of time the present owner has been listed on the title. Banks (but not Freddie Mac) frequently impose a requirement of 90 days minimum as a kind of backlash against the flippers and phony, over-inflated appraisals that plagued the era of subprime excess. Rehabbing refers to the purchase of foreclosure bargains typically needing rehab or repair in order to sell at profit to an investor. The investor also stands to profit by buying at 25% or more under the final appraisal price. Hartman and his guests extol the virtues of this strategy which confers both social and economic benefits by restoring neighborhoods and providing a risk-free investment that is a great diversification tool to help insulate against stock risk.
Today, full-documentation loans are the rule. Gone are the days when “stated income” (especially for self-employment) was allowed. Again, abuse in what the host calls “liar’s loans” contributed to the current crisis, resulting in stricter rules and documentation requirements. Still, for the type of financing discussed here, the time-table to closing is around 30 days as long as loans are pre-approved.
This article is based on Episode 148 of Jason Hartman’s Creating Wealth Show. You can listen to the full podcast at JasonHartman.com, a real estate investment and wealth creation site.