Once you have found a
lender with whom you’d like to work, get qualified! You
will meet with a lender to discuss various loan options and determine the loan
program best suited to your needs. You
will need to provide your financial information at this meeting and your credit
report will be run. It is best to obtain LOAN APPROVAL vs. a
pre-qualification prior to finding a property.
Importance of having a good credit score
Your credit score, also called your FICO score, is a
expressed as a number and based on a statistical analysis of information from
the three credit reporting agencies – Equifax, Experian, and TransUnion - and
each agency will likely have a different score for you. Lenders usually take the middle score for the
purposes of obtaining your loan.
Your FICO
score can range from approximately 300 to 850. However, most people fall around 680-750. Banks and other financial institutions use this score to
help them determine the likelihood that you will pay your debts. In my
experience, as long as your credit score
is above 680
you will not have a problem obtaining a decent loan. A score of over 720 will help you get the
best financing available. The better
your score, the lower risk you are for a lender; thus, they are more willing to
offer you the best financing. Even if
your credit falls below 680, you still will likely be able to obtain a loan;
you simply will have a higher interest rate, which can dramatically affect
whether or not an income property you plan to buy will make financial sense.
If
you find you have some credit issues, it’s best you find out now before you
find a property you really want to buy.
§
Pay your bills on time. The longer your history of paying your bills on time, the better your
score.
§
Keep balances on your revolving
credit (credit cards) below 50% of your available credit.
§
Pay down as much revolving debt
as possible.
§
Don’t apply for
new credit cards, and don’t bother to cancel unused cards; either of these
actions may actually lower your score.
§
Don’t increase
your debt; for example, if you are shopping for a property, do not decide to
buy a new car at the same time.
There
is a significant amount of documentation required when you apply for a loan.
This checklist should help you to collect some of the items you will need to
accurately fill out your loan application. To save time and frustration during
the loan process, start gathering the documentation listed below as soon as
possible.
Residence History:
q
Your addresses for the last two years, and length of time at each
address
q
If you currently rent, your landlord’s name and address for the last
twelve-month period
Employment History:
q
The names and addresses for each of your employers over the last
two-year period
q
The dates you worked at each place of employment
q
A letter explaining any gaps in your employment in the last two years
q
Original pay stubs for the last thirty days
q
Last two years’ W-2 and/or 1099 forms
q
Last two years’ tax returns
q
If self employed, year to date profit and loss statement and current
balance sheet
q
Transcript of diploma if you were a student in the last two years
q
If retired, a retirement, social security or disability-award letter
and a copy of your most recent check
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For All Savings,
Checking Or Investment Accounts:
q
The names and addresses of each financial institution and account
numbers
q
The current balance or value
q
Three months’ bank statements on all accounts
q
If applicable, three months’ statements for IRA’s, Keoghs, 401K’s or
profit sharing
Personal Property That
You Own:
q
The net cash value of your life insurance
q
The make, year and value of your automobile
q
The value of your furniture or other personal property
Real Estate That You
Own:
q
The property address(es); The estimated market value, outstanding loan
balance and the amount of your monthly payment
q
If applicable, the amount of your monthly rental income
For All Outstanding Loans And Credit Cards:
q
Coupon Book or most recent statement for every account you have open
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There are literally hundreds of loan programs
available specific to the type of property you intend to buy, from fixed rate
loans to adjustable, interest only, and balloon payments. Then there is commercial lending; loans
specific to apartment buildings or retail space. I could go on and on; plus, rates and loan
programs change daily. That is why
finding the right lender is extremely important to your investing success. A lender who knows your needs and financial
situation will be able to find the best loan products to get you into the
property you want.
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