How to get the best investment loan

With slower real estate markets, lending competition and current consumer confidence, there has never been a better time to purchase your investment property and, by doing your homework before taking on a mortgage, you can get a better value investment for your dollar.

There are a few secrets and simple tips buyers should know before shopping for an  investment property loan mortgage.

The first, and most important of these, is to do your homework.  Investment property loans vary greatly and it’s important you find the one that best suits your situation.  Once you have a good idea of the property you are seeking and its price, work out your budget, list all your assets, and decide how much you can afford in repayments.  One mistake that new investors make is applying for loans after they have a contract in place.

Getting an investment property loan is a slightly different proposition as compared to the residential property loan.  There are number of points you need to consider when dealing with property investment loan.

To start with, most of the times loan amount you are looking to borrow is comparatively higher in a property investment as compared to your residential property.  When giving you property investment loan, lenders analyze your personal debt ratio as well as the debt coverage ratio.  Know the type of loan you want and the features (offset facility,variable or fixed rate), the common loan types include’

• Principle and Interest (P&I) – best suited for your own home;
• Interest Only (IO) – good for investment; especially when linked with an offset account;
• Line Of Credit (LOC) – Slightly higher interest repayments but gives the best flexibility for investments;
• Low Doc Loans – higher LVR but easier to get.

Another key point to consider is credit check history, be wary of the number of credit and loan applications you submit as these could affect your eligibility for future investment loans.  I will cover this in more detail in another post.

Do your homework before applying for any type of loan. When you do this, you increase your chances of getting an approval. Before granting you approval, they will take a look at your loan-to-value ratio (LTV). The LTV in property investment is pretty much identical with residential lending.

LTV is basically the debt on the property with regard to current market value of your property. For example, if the present market value of your house is $400,000 and a mortgage of $320,000 in that case your LTV would be 80 per cent. Residential lenders will have no problem in approving you loan at 80 per cent LTV or higher. A majority of  lenders dealing with Low Doc loans demands an LTV of more than 60 per cent.

If you qualify for a loan from a bank or major mortgage lender, it is usually best to approach them for a loan, and don’t be afraid to negotiate on their establishment fees and interest rate. After all, there is plenty of competition and they want your business!

If you don’t fit into this category, you can still apply for a loan from mortgage broker who will be able to tailor your application to specific lenders who will lend on differing levels of credit checks, income or employment verification, and proof of taxable income.

The difference between the major lenders and the other lenders is that the former lend not only against the value of the property, but who is acquiring it based on income etc., whereas the latter are only interested in the value of the property.

You need to check the fees for second tier investment loans as they are usually slightly higher than conventional lender loans, but they give people the opportunity to buy the investment property when otherwise they would be stuck.

Lenders are more willing to provide money for home loans than any other type of loan because they know purchasers will always meet their mortgage repayments ahead of other payments, to protect their asset and keep a roof over their family’s heads and fortunately for us this flows onto investment properties.

Happy Hunting