If you’re thinking about applying for a real estate investment mortgage, it’s important to consult with a professional that knows what they are doing. That’s why I recently went to interview Kim Burke from Leader One (NMLS 1029555). Many of my Clients have worked with Kim and I’ve been impressed by a few key things:
- Kim has a knowledgeable team working for the client
- The team follows a system and process
- The team communicates with the client at each step of the way, so the client is not left wondering what’s going on.
Qualifying For An Investment Mortgage
During our interview, Kim told me that in today’s market you typically need a credit score around 660 or higher to qualify (this number is subject to change). You will also need a down payment and some cash reserves. The exact amount will depend on the price point you are looking at, the number of other mortgages you have and what you plan to do with the property.
One way to reduce your down payment is to do what I did with my first purchase. It was in 2011 that I purchased a four unit building and moved into one of the units. I did this using an FHA mortgage which only required 3.5% of the purchase price as the down payment. In addition to the low down payment, I was also able to use 75% of the rents from the other units to reduce my debt to income ratio. An FHA mortgage is only available to people who will move into their 1-4 unit property and live there for at least one year. Looking back, this was THE BEST financial move I could have made in order to boost my financial position.
An additional way to get an investment mortgage with little to no down payment is by finding a property that needs a lot of work and improve the property to increase its value. If you first, purchase the property with a private loan or hard money loan, renovate the property, then you can do a refinance based off of the new value. While every situation will vary, the ideal result is that the final mortgage will pay back all of the initial loan, renovation costs and other fees associated with purchasing the property.
One detail I like to clarify for newer investors is that, despite how much the gurus tout their no-money-down techniques, it is still important to have cash in the bank. There are additional costs associated with buying properties besides the down payment. These include a home inspection, appraisal, and closing costs. So be sure to start saving for your purchase right NOW.
While you are working towards your purchase, it’s important to keep your eye on your credit score. A credit score isn’t everything, but typically the better your score, the better mortgage terms you can get. Alternatively, the worse your score, the less likely you can get a mortgage. Many credit card companies will give you regular updates to your credit score. There are also several free apps out there. I personally like www.CreditKarma.com, which notifies me the moment someone pulls my credit and gives me tips for improving my score.
Grow Your Network With A Group Of Advisors.
As you get into real estate investing you’ll soon find that this is a team sport. The better your team members are at their profession, the better you will do. It’s a matter of mindset, knowledge and experience. And the neat thing about real estate investing is that your team members will be more successful if you are successful. As a result, they will naturally have an interest in helping you reach your goals. So look at your network as your net-worth!
You don’t need the whole team in order to do your first deal, but always pay attention to when you meet a financial planner, a mortgage broker, a real estate agent, a property manager, a CPA and a real estate attorney. Look for the ones that are good at what they do AND that have an ABUNDANCE outlook on life and investing: the more you cut up the pie, the bigger it gets.
To finish my interview with Kim Burke, she stressed her interest in her client’s long-term goals in addition to their short-term goals. Typically real estate investors are looking to purchase more than one property over their lifetime. With your long-term goals in mind, Kim can better advise you on the proper steps to take related to your immediate mortgage needs. This aspect of Kim’s business model is probably why my client’s work well with her. I have the same outlook. I am a real estate agent not because I’m trying to get-rich quick and work just with people who are ready to do business NOW. For me, real estate is a lifestyle and I enjoy working with clients at all stages of their investing careers.
If you’d like to discuss more about purchasing investment real estate, please contact
John Stiles | Urban Enterprises, Inc