Financing rental properties is always a risky business for your lenders, so it's only natural that they will take time to evaluate your ability to pay your debts before handing you their money. If you can prove yourself to be trustworthy and reliable, you will definitely be enjoying lower interest rates and better terms on your mortgage loan.
Apart from proving yourself to be a dependable borrower, there are additional strategies that you can use to slash the cost of financing rental properties. Read on to uncover these tried and tested methods:
Take Quick Steps to Brush up Your Credit Score
Your credit score is one of the major factors that lenders will use when determining your eligibility for rental property financing.
A credit score in the mid range of 620 to 750 can land you a decent deal, while a score of 750 or more will get you the lowest interest rates and open your world to a wide selection of willing mortgage lenders.
In general a credit score of less than 620 will banish you to the sub-prime market, making it hard for you to obtain financing. Even if you do manage to get your hands on a mortgage loan, you can expect the interest rates to be unfairly high. If your score is less than 620, it's important to take steps to improve it before financing rental properties.
There are few quick fixes that can boost your credit score relatively quickly. Firstly keep all your old credit and financial accounts open. The age of your accounts plays a part in your credit score.
Second, always pay up your bills on time. Even a single late payment can have a big impact on your score. Third, avoid opening new accounts right before you apply for rental property financing. Excessive inquiries for your credit report can make you look risky to lenders.
Finally, pay off your balances to 50% or less of your total credit limits on your revolving accounts.
Save up so that You Can Afford a Larger Down Payment
It is highly tempting to pay just 5 percent down payment that has become almost the standard with mortgage loans these days. But a traditional down payment of 20% will save you a lot of money in the long run.
Lenders know that you will be less likely to default if you are investing a significant chunk of your own money into the rental property. Because of this, you will enjoy lower mortgage rates avoid having to pay extra for private mortgage insurance when financing rental properties.
Be Wary of Any "Zero Cost" Rental Property Financing
If you find a lender offering you a mortgage loan with no closing costs, make sure you study the terms carefully.
Most of the time, a mortgage loan will cost you a few thousand dollars out of pocket for agent, legal, transaction and closing costs. However, lenders sometimes try to lure customers with "no cost" financing with the catch being a slightly higher interest rate.
It is enticing to pay less cash out of pocket upfront, but if means having to endure a higher interest rate, you will actually be forking out much more in the long run.
Consider an Offset Mortgage to Lower Your Interest
Another way of slashing your interest when it comes to financing rental properties is to take on an offset mortgage.
Like the name suggests, an 'offset' mortgage requires that you open a savings account that is tied to your mortgage balance. In essence, the account in that savings account acts as collateral to offset the balance of your mortgage and you don't have to pay any interest on the amount held in linked savings.
For example let's say you have a mortgage of $100,000 and $20,000 in a linked savings account. You won't be earning any interest from this $20,000 savings account. Instead you will be only paying interest for $80,000. Since mortgage rates are often higher than saving interest rates, an offset mortgage can often save you a lot of money.
To sum everything up, there are many ways for you to save money when financing rental properties. Showing the lender that you are a trustworthy borrower and making the right financial choices will ensure that you get the best possible terms and rates on your rental property loans.
Author Resource:-
Teo Zhenjie has been showing landlords how to manage their tenants and rental property effectively on Propertydo http://www.propertydo.com/ - To learn more important tips on financing rental properties, visit his website today for step-by-step real estate guides, free resources and forms.
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