For a vast majority of first-time real estate investors, getting investment property financing is a necessity. Real estate investing is expensive and very few can buy investment properties with cash. Nevertheless, financing real estate investments can be an intimidating process for beginner investors. Apart from knowing the basics of investment loans, you need to know how to choose the best mortgage lenders.
Choosing a mortgage lender is a significant decision because you may be paying for the mortgage for a number of decades. You will need to shop around to find the best terms possible before you decide who to get a loan from. But who are the best mortgage lenders? To be able to answer this question, follow these guidelines:
1. Work on your credit score
The first step to finding the best mortgage lenders for first-time real estate investors is to work on your credit score. If you have a good credit score, it will be easier for you to find a good mortgage since you will be more attractive to most of the lenders. You are likely to get a better deal with the best mortgage rates. A lower interest rate can help you save thousands of dollars in interest over the life of the mortgage. Therefore, make sure you learn how to improve your credit score before you begin to shop around for mortgage lenders.
Check Out This Guide to Learn More: How Can You Improve Your Credit Score for Financing Investment Properties?
2. Know your mortgage options
To find the best mortgage lenders, you have to learn about mortgage options and decide the right one for you based on your needs. Some of the most common options include national banks, local banks, mortgage companies, and credit unions.
For a more hands-on experience, a credit union or local bank would be a good choice. On the other hand, you can get a hands-off experience with online mortgage lenders. Searching for the best online mortgage lenders is usually easier because you can get competitive rates from the comfort of your house.
Related: What Kind of Mortgage Options Are Best for Rental Properties?
3. Compare the mortgage rates
Rental property mortgage rates can be fixed or variable. A fixed interest rate means that the monthly payments won’t change over the life of the loan. On the other hand, a variable rate means that the mortgage payments will fluctuate based on market conditions. Apart from these, interest rates will vary for one lender to another. You can search for the current mortgage rates online and do a comparison.
4. Get the details of the additional mortgage fees
Each mortgage lender is different. Apart from mortgage rates, you should also look at other potential mortgage costs. A mortgage with a low-interest rate is not always cheaper. It may have extra fees rolled in that make it costlier.
Some of these additional fees may include:
- Application fee
- Processing fee
- Underwriting fee
- Appraisal fee
- Rate lock fee
- Private mortgage insurance
Make sure you assess all the potential closing fees. This will enable you to determine which mortgage lender is giving you the best deal. Before choosing a mortgage lender, ask them to provide you with a list of their fees so that you know what to expect. The best mortgage lenders are those that are transparent about the closing fees.
5. Get a recommendation from someone you know and trust
You can find the best mortgage lenders by asking for a recommendation from someone you know and trust that has bought an investment property recently. This can be a family member, friend, or colleague. They will be in a better position to give you some insight on how to choose a mortgage lender. If they had made some mistakes, you will be able to avoid the same pitfalls.
6. Get help from a real estate professional
Ideally, a real estate professional can help you find a better lender for your situation than you would on your own. Your real estate agent is an excellent resource when it comes to choosing the best mortgage lenders. Experienced real estate agents have helped numerous people buy property and know what their clients liked. Therefore, they can offer you advice on how to find the best mortgage lender for your specific needs and goals and even recommend a few.
A mortgage broker can also help you find the most appropriate mortgage lenders with the best mortgage rates and terms. They will guide you through the whole mortgage process and help you avoid common mortgage mistakes.
7. Check out online reviews
When looking for the best mortgage lenders for buying an investment property, you should not only depend on the advice of other people. You should also do your own research. Take time to check the reviews of different lenders online. This will give you some insight into the experiences of their past clients. Reading multiple reports from their clients will show you their general feeling about the services of the lender. Positive reviews are usually an indication of satisfied clients. They show that the mortgage lender provides good customer service and is likely to be more reliable.
The Bottom Line
Understanding how to pick the best mortgage lenders is a critical aspect of buying an investment property. It involves more than just investment property mortgage rates. You need to thoroughly scrutinize each of the potential lenders. The above tips will help you do your assessment properly and will enable you to find a good lender.
Finding the best mortgage lenders is not the end. For your mortgage to be approved, you need to find an investment property that is likely to bring a good return on investment. Your rental income should be able to pay off the monthly mortgage payments and rental expenses. The rental property should also have a good cap rate and cash on return.
For investment properties in the US housing market, you can use Mashvisor’s rental property calculator to find and calculate these real estate metrics and ensure that your mortgage is not rejected.
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Related: Rental Property Mortgage: The Ultimate Guide to Getting Approved