Get Pre-Approval Investment
How to get a Mortgage Pre-Approval for Investment Properties | Everything you need to know.
Investing in real estate may be a lucrative venture, and obtaining a mortgage preapproval for investment properties is essential for many prospective investors.
Once you receive a mortgage pre-approval, we will provide you with a verified mortgage pre-approval letter that will affirm your ability to purchase the investment property without delay.
This guide aims to provide a comprehensive overview of mortgage preapproval in the context of investment properties.
Historically, residential real estate in the United States has been one of the top performing investments.
If offers real estate investors the opportunity to fix and flip the home to capture instant profits. Many investors elect to purchase investment properties to enjoy the long-term gains from rental income and property appreciation over time.
Whether you are a first-time real estate investor of have years of experience, one of the first steps to acquiring investment properties is to get a mortgage pre-approval.
In this article, we will share with you the most important requirements, and the process of obtaining a mortgage pre-approval for investment properties.
No credit pulls, spam calls or emails. Just stupid low rates.
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Which loan programs offer financing to purchase an investment property?
Jumbo loan programs and Conventional mortgage loan programs offered by Fannie Mae and Freddie Mac allow investors to obtain mortgages to purchase or refinance a residential property as an investment.
Loan programs like FHA, VA, and USDA government insured programs are limited to primary residences in most cases.
Conventional Loan Requirements for Investment Properties loan approvals:
Under conventional underwriting guidelines, borrowers can qualify to purchase an investment property as long as they can satisfy the following conditions:
- Minimum credit score: 620
- 1 Unit Residential: 15% Down Payment
- 2-4 Unit Residential: 25% Down Payment
- Max. allowed investment properties financed: 1-6
- Max. allowed investment properties financed: 7-10, requires 720 credit score
- Eligible Property Types: Residential Condos, Single Family, Duplex, triplex, Quad, and Manufactured
- Bankruptcy Seasoning: No Bankruptcy in last 4 years
- Foreclosure Seasoning: No Foreclosure in last 7 years, unless included in bankruptcy
- Liquid Asset Reserves: In most cases applicants will be required to show a minimum of 6 months of monthly payments as reserves, for each investment property owned.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
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Where is the best place to get Pre-Approved for an investment property?
If you are looking for a fast online mortgage pre-approval that generates multiple mortgage lender's loan pre-approval to purchase or refinance an investment property, then you should use an online mortgage marketplace, like EquiFund Mortgage.
We have a fully automated mortgage pre-qualification through mortgage pre-approval mortgage app that only takes 3 minutes to complete.
Within one user session, you will be able to identify the lowest pre-qualified and pre-approved interest rate, and fee loan from a list of real loan offers.
EquiFund Mortgage offers the only Lowest Interest Rate and Fee Guarantee.
What is the Mortgage Preapproval Process for an Investment property?
The process to get pre-approved to purchase or refinance an investment home, is the same as purchasing or refinancing a primary residential property.
The core difference is the underwriting requirements associated with investment homes which falls under conventional mortgage loan programs.
Simple Steps to get Pre-Approved
- Gather your information: Annual Gross Income, Rental Income, Credit Score
- Get Pre-Qualified: Use the Online Mortgage App to get pre-qualified
- Select your Loan: Identify the lowest annual percentage rate loan that fits your budget
- Upload your documents: The mortgage app will tell you what docs to upload
- 24 Hour Pre-Approvals: We will review and confirm full eligibility and send a verified pre-approval letter.
- Select your home: Once you receive an executed sales contract, we will initiate underwriting to closing in less than 30 days.
Mortgage preapproval is an evaluation conducted by a lender to assess a borrower's creditworthiness and determine the maximum loan amount they are eligible to borrow.
Mortgage preapproval offers several benefits, including establishing a clear budget, demonstrating financial readiness, and increasing credibility as a buyer.
For investment properties, the preapproval process involves additional considerations, given the unique nature of these transactions.
No credit pulls, spam calls or emails. Just stupid low rates.
Get Pre-Approved or Try the Mortgage Calculator.
A deeper look into the Mortgage Preapproval Process:
If you are new to purchasing real estate, then you may find this information a little more useful to understand the process of getting pre-approved for an investment home.
The process of getting pre-approved and closing on a mortgage transaction to purchase an investment property will require a review of the credit report, income documents, debts and liabilities and asset accounts.
Review Financial Documents
Lenders require specific documents to assess the borrower's financial situation. These will include tax returns, pay stubs, bank statements, and existing real estate holdings documentation.
- Last 2 years IRS Tax Returns
- 1 Months most recent pay stubs
- 2 Months most recent bank statements
- Other Real Estate Holdings Property Values
- Other real Estate Holdings Mortgages and monthly payments
Evaluate the Borrower's Credit Score and Rating:
A strong credit score improves the borrowers' chances of mortgage preapproval.
They should obtain a copy of their credit report, review it for errors, and take steps to improve their score if necessary.
Conventional loans will require a minimum of 620 for loan preapprovals.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
Determining the Borrowers' Budget:
Applicants should consider their financial goals, calculate their debt-to-income ratio, and establish a budget for their investment property purchase.
In addition, applicants should consider maintaining a reserve savings account for each investment property they acquire or currently have.
By maintaining a reserve savings account for each investment property, the real estate investor will have a safety net of funds available to account for future vacancies for each property they own.
Moreover, each property will have repairs, and maintenance that should be accounted for prior to purchasing a home.
In consideration of owning real estate as investments, it is important to establish a safety net as an entry point to acquire real estate.
Research Lenders using Online Mortgage App:
To explore several national lenders loan programs to consider, down payment requirements, interest rates, closing costs, and required reserves for an investment property, you can use our online mortgage app for pre-qualifying and pre-approvals that will identify the best loan programs for you. By exploring different lenders and mortgage options you will find the best fit for your' investment goals.
Consider factors such as interest rates, loan terms, and their experience in financing investment properties.
The online mortgage app will identify all available loan programs that are eligible and applicable based upon the information submitted.
Research Real Estate Agents:
Unless you are a seasoned and experienced real estate investor, applicants should carefully screen real estate agents with the focus of finding an agent that has more than 10 years working with investment properties.
The borrowers will need to be diligent in finding real estate agents who are knowledgeable in invest properties.
Submit a Preapproval Application:
Once the borrowers have selected the lowest rate and fee loan from the mortgage app, by completing their preapproval application and upload the requested financial documentation.
We will review the application and soft pull credit report that does not affect your credit score, to determine preapproval and issue a mortgage pre-approval or denial based upon all factors submitted.
No credit pulls, spam calls or emails. Just stupid low rates.
Get Pre-Approved or Try the Mortgage Calculator.
Common Challenges and Considerations:
Investment property mortgage preapproval may present unique challenges. Understanding these considerations will help the borrowers navigate potential hurdles and ensure a successful outcome.
Higher Down Payment Requirements:
Investor loans require higher down payments. This is true for all lenders that underwrite and approve mortgage loans on investment property's using Fannie Mae and Freddie Mac underwriting guidelines.
The standard down payment on an investment property is 15%, and up to 25% based on the type of property and number of units per property to be purchased.
Cash Flow and Rental Income:
Lenders may assess the rental income potential of the investment property when calculating the borrowers' preapproval amount.
Demonstrating a solid cash flow projection may strengthen their preapproval application.
In general, if the rental income from a property is declared on the IRS tax returns for a period of 2 years, then the underwriting guidelines will require the lender to qualify the rental income from IRS schedule E, part 1 which defines the net income or loss for rental properties.
Please keep in mind underwriters can add back any losses associated with depreciation of the property as declared in the IRS Tax Return
If the property, is a new investment property, then guidelines will take 75% of the rents declared in the lease to be counted as income.
Debt-to-Income Ratio:
Maintaining a healthy debt-to-income ratio is crucial for investment property preapproval.
The borrowers should minimize existing debts and avoid incurring additional liabilities to increase their chances of approval.
The standard debt-to-income ratio will be weighted more heavily given this is an investment property.
If your backend debt to income ratio exceeds 43% on an investment, you still may qualify based on the amount of your liquid assets.
Otherwise, to qualify you will need to lower your debt to income ratio.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
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Frequently Asked Questions.
Why is mortgage preapproval important for investment properties?
Mortgage preapproval is crucial for investment properties as it helps the borrowers understand their purchasing power, streamlines the buying process, and strengthens their negotiation position with sellers.
What factors do lenders consider during mortgage preapproval for investment properties?
Lenders typically evaluate factors such as the borrowers' credit score, income, debt-to-income ratio, property type, rental income potential, and financial reserves when determining mortgage preapproval for investment properties.
What credit score is typically required for mortgage preapproval in investment properties?
While specific requirements vary among lenders, a credit score of 620 or higher is generally recommended for investment property mortgage preapproval.
How long does mortgage preapproval for investment properties take?
The preapproval process typically takes 24 hours when using the mortgage app. You will receive an instant pre-qualification when you use the mortgage app.
Once you upload your income and asset documents you will receive a pre-approval either same day or no later than 24 hours.
No credit pulls, spam calls or emails. Just stupid low rates.
Get Pre-Qualified or Try the Mortgage Calculator.
What are the typical down payment requirements for investment property mortgage preapproval?
Down payment requirements for investment properties are higher than those for primary residences.
While they may vary depending on factors such as the lender and loan program, expect to contribute at least 15% to 25% of the property's purchase price as a down payment.
Can borrowers use the rental income from the investment property to qualify for mortgage pre-approval?
Yes, Rental income may be considered when determining borrowers' eligibility for mortgage preapproval.
Lenders may evaluate the rental property's income potential and factor in a percentage to offset the mortgage payment.
However, only some of the rental income may be considered as the borrower's income, as lenders typically apply a vacancy factor and assess the borrowers' ability to cover potential expenses.
How does the borrower's credit score affect mortgage preapproval for investment properties?
The borrowers' credit score plays a significant role in the mortgage preapproval process. Lenders use the borrowers' credit scores to assess their creditworthiness and determine the interest rate they will offer them.
While specific credit score requirements may vary, higher scores, typically above 680, improve their chances of preapproval and may lead to more favorable loan terms.
Are there specific property types that lenders prefer for investment property mortgage preapproval?
Lenders generally prefer investment properties with a proven record of rental income and potential for appreciation.
Traditional single-family homes, duplexes, and small multi-unit properties are commonly favored.
However, properties like vacation rentals, fix-and-flip projects, or commercial properties may have stricter lending requirements or require specialized loan programs.
No credit pulls, spam calls or emails. Just stupid low rates.
Get Pre-Approved or Try the Mortgage Calculator.
What role does the debt-to-income (DTI) ratio play in investment property mortgage preapproval?
A. The borrowers' debt-to-income ratio is essential in determining their preapproval eligibility.
It represents the percentage of their monthly income that goes towards debt payments. Lenders typically prefer a DTI ratio below 43% for investment property preapproval.
The borrowers should keep their existing debts low, and maintaining a higher income relative to their debts may help improve their DTI ratio.
May borrowers get mortgage preapproval for multiple investment properties?
Yes, it is possible to get preapproved for multiple investment properties. However, lenders may have limits on the number of properties they are willing to finance for a single borrower.
The preapproval process will also evaluate each property's income potential, the borrowers' financial stability, and their ability to manage multiple mortgages.
The duration of a mortgage preapproval may vary among lenders, but it typically ranges from 60 to 90 days.
After this period, the borrowers' preapproval may expire, requiring them to update their financial information and go through the process again.
Can borrowers shop around for different mortgage rates after getting pre-approved?
The borrowers may still shop around for different mortgage rates and loan terms after getting pre-approved.
Pre-approval gives them a solid starting point, but they must commit to something other than a specific lender or loan.
Comparing offers from multiple lenders may help borrowers find the best rates and terms that align with their investment goals.
What happens after the borrowers receive mortgage preapproval for an investment property?
Once the borrowers receive mortgage preapproval, they may confidently search for investment properties within their budget.
When they find a property they wish to purchase, they may submit a formal loan application to the lender.
The lender will then thoroughly review the property, including an appraisal, before finalizing the loan approval process.
Summary for Getting a Mortgage Pre-Approval on Investment Properties
Mortgage preapproval for investment properties is essential to empower borrowers as real estate investors.
Understanding the down payment requirements, credit score considerations, rental income potential, and debt-to-income ratio, they may confidently navigate the preapproval process.
The borrowers will need to considers the costs associated with owning rental property.
The borrowers should consult with mortgage professionals specializing in investment properties to ensure they find the best loan terms and structure for their specific investment objectives.
With a mortgage preapproval, they may move forward in their real estate investment journey with clarity and increased chances of success.
