As the economy continues to improve, many investors are starting to consider jumping into the residential investment and commercial real estate markets again. And low prices make it a good time to do so. According to figures from the National Association of Realtors, most metropolitan areas within the U.S. reported lower median sale prices during the second quarter of 2009 compared to the second quarter of 2008. Sales in Florida and California appeared to post some of the highest price drops, while prices on homes in the South, Midwest and Texas were less affected. But while prices are good, the days of quick-and-easy financing are over, and the tightened credit market can make it tough to secure loans for investment properties. However, there is some good news: A little creativity and preparation can bring loans within reach of many real estate investors. If you’re ready to seek out financing for your residential or commercial investment property, these five tips can improve your chances of success.
Mortgage insurance won’t cover investment properties, so you need at least 20 to 30 percent down to secure traditional financing for them. If you can amass 25 percent, you may qualify for an even better interest rate.
Although many factors — among them the loan-to-value ratio and the policies of the lender you’re dealing with — can influence the terms of a loan on an investment property, investors should check their credit score before attempting a deal. It will have the greatest impact on a loan’s terms. “Below (a score of) 740, it can start to cost you additional money for the same interest rate. Below 740, you will have to pay a fee to have the interest rate stay the same. That can range from one-quarter of a point to two points to keep the same rate. The alternative to paying points if you score is below 740, obviously, is to pay a higher interest rate. In addition, reserves in the bank to pay for all your expenses, personal and investment-related, for at least six months also have become part of