So you’re interested in purchasing a real estate investment to help you generate some passive income. Or perhaps you are looking into flipping a house. Or maybe you are considering buying a house to rent out. Real estate investments are a good way to diversify your assets. But if you do not have ready cash available, you might feel unable to get started. The good news? Present interest in the real estate market means the number of firms that offer loans for real estate investments has also increased. So narrowing down your list might prove a worthy task.
Thankfully, there are institutions out there with specific loan plans designed to help the real estate investor. Firms, such as Washington Capital Partners, have made a name for themselves in helping first time investors.
So what does it take to qualify for a real estate investment? Every lending institution has its own qualification requirements. But there are general guidelines that most lenders look for, which are as follows.
- Evaluate your credit score and finance history.
Having a good credit score matters—but it really depends on what type of property you are purchasing and your plans for the property. So if your credit history is not stellar, there’s no need to give up just yet. Lending institutions will consider other factors. For example, the worthiness of your business plan, your personal net worth, etc. Of course, having a good credit score will only improve your chances of getting that loan. In the case that it does make a difference, you will want to have a credit score rating of 660 or more. Anything higher than this number will further improve your chances.
- Have an idiot-proof business plan.
If you are considering a rental property, where is the property located? Is it in a highly visited area? What is your marketing plan? Show how your plan will work by backing every element with relevant data. You could win or lose your loan on the strength of your business plan. Consider hiring someone to write up your business plan if needed. Putting in the time and money to make a business plan that makes sense is worth every bit invested into it. Aside from a business plan, you may also be required to submit a real estate pro forma, which outlines your income and expense projections.
- Check your collateral.
When getting a loan for your real estate investment, the good news is that often the real estate itself is viewed as collateral. In other words, if you become unable to pay off your loan, the lending institution will take ownership of the real estate property in question. Although it often works like this, there are cases where further collateral may be requested. These types of loans are called recourse loans, and are backed by the purchaser’s personal assets along with collateral. Recourse loans are often requested when the purchaser is a commercial entity without a proven financial track record. If you think your loan may need to be a recourse loan, consider what personal assets you feel comfortable with adding as collateral.
- Prepare your bank statements and resume.
As part of your loan application, you will likely be required to submit 2 years’ worth of tax returns and financial statements. Your financial statement should list all your liabilities, such as your house mortgage, any other loans or debts, etc. Assets include saving accounts and stocks. Your resume should list your current place of employment and your annual income. If you have had previous successful real estate ventures in the past, be sure to list those too.
With the upswing in real estate prices, getting your loan should happen sooner than later. With the right planning and a thorough review of your paperwork and presentation, you’ll be in good shape to get that loan. Soon, you’ll be taking your first step into the exciting world of real estate investments.