Rental homes are more difficult to fund than owner-occupied homes. Mortgage investors know that if a borrower experiences financial trouble and cannot cover all of his mortgages, he’ll pay the mortgage to the home that he lives initially. To help prevent this situation, mortgage lenders require high credit scores and more overall financial stability when they fund rental property. It’s sensible to ensure that your financial house is in order before you try to purchase or refinance a rental home.
Find a copy of your credit report before you talk to a loan officer. Make sure your credit report accurately reflects all of your credit lines and that there are not any errors. The three big credit reporting agencies offer one free copy of your credit report every year. Order a copy of all three, not only one. Some creditors report to only one or two of the bureaus instead of to all three. Mistakes might also reflect on a single report. Contact the credit reporting bureaus in writing if any items will need to be corrected.
Review your investment and bank statements to ensure you have at least six weeks of payments to the new mortgage in the bank. Many mortgage companies require at least six months of payment in reserve to ensure that there are sufficient funds to make the payment if financial hardship happens. If you are buying a rental house, you will need the six weeks of reservations as well as your down payment and closing costs.
Make copies of your tax returns. If your tax returns establish a two-year history of possessing rental homes, you could have the ability to use the rent to cancel debt. If you do not have a two-year history, you may have to qualify for the payment minus the guidance of the rental income. This usually means that you will have to qualify for two mortgages: the rental home’s mortgage and the one which belongs to the home you live in.
Consult about specifics of the guidelines of your loan. Additional documentation may have to show your ability to control the mortgage payment for a rental home. Be ready with at least a 20 percent down payment if you are buying a home. The lender may even ask that you buy rent loss insurance for the property as part of your risk insurance. It’s particularly critical for you to work closely with your loan officer to ensure that the mortgage company approves your loan.
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