Vacation home rental loans are not the same as mortgage loans. An investment loan can be more challenging to obtain, and some loan companies may take advantage of that. That is why it is essential to find a lending company that specializes in vacation rental home loans.
Find Out If You Qualify for Investment Financing
Research how lenders determine if you are qualified for investment financing. The first thing they will look at is your credit score. There are three leading companies you can contact to get your credit score. If your score is not at least 620, you need to improve it.
Loan officers will also look at your cash reserves if you do not have a savings account with a substantial amount saved. If you do not have extra cash after paying your current bills, how will you afford another one? If this is a case, have an answer to that question.
Figure Out Your Debt to Income Ratio
Your debt to income ratio is another thing that factors into your chances of getting a loan. If it is too high, you will not be approved because the lender will believe you would not pay back your loan and still pay your bills.
Your debt to income ratio is your income compared to the amount of debt you have. The debt to income ratio is relatively easy to figure out; divide your bills by your gross monthly income. If your ratio is more than 20%, you need to lower your outstanding debts.
Factor in Maintenance Costs
You may think a vacation rental has fewer maintenance costs than your primary residence. You’re probably mistaken. In addition to the upkeep of your home, there are additional costs you will incur.
The amount of maintenance your property requires will determine your profit. To lower your maintenance costs, look for local contractors you can employ. Large companies typically charge more since they have more overhead, such as payroll and general upkeep costs. Local businesses will be more personal, plus you will be investing money back into the town.
When you get pre-qualified for an investment loan, you know the amount of money a lender would allow you to borrow. Doing this saves you a lot of time. Instead of looking at homes that may be out of your budget, you will know what your budget is.
When going in to speak with a vacation rental lender, you need to bring in the required paperwork. This paperwork is essential in determining your pre-qualification or if you are even able to get your investment finances at all. The needed paperwork is listed below.
- Bank statements
- Proof on income
- Credit report
- Last two years taxes
Those documents are indeed necessary forms of paperwork that will determine whether or not you get approved, but there are several other factors to be considered, especially specific areas of your credit report.
How Long Will it Take to Close the Loan
Closing on your investment loan can take as long as 60 days, so do not be in a rush; the wait is definitely one of the unfavorable aspects of real estate investing. Once you have found your property and the sellers accept your offer, it is normal to want to get in and start renovating immediately… Be prepared to wait again.
The good news is there are things you can accomplish while you are waiting. If you plan to redo the entire house, you can start looking for ideas. Read tips on the best way to decorate vacation home rentals; Look at other homes in the area; research what the best renters are doing and follow their lead.
Loans for investment properties can be more challenging to get than a traditional mortgage. Before you start searching for rental property, make sure you have weighed all of the pros and cons. Once you have decided to move forward, you need to get pre-qualified. To do this, you need to know your financial standing so that the process is simple and can move quickly.