Lending Requirements for Rental Properties

When it comes lending requirements for getting a rental property loan, you gotta walk before you can run.

The first thing you might think of when it comes to purchasing a rental property (you know; besides what kind of property you want to buy, naturally), is the inevitable rental property loan and the lending requirements for actually getting one. And that might seem a little daunting. But, really, it’s not.

First of all, even though the rental property loan approval process requires some paperwork, some legwork, and some documentation, getting an income-producing rental property is a great idea, as investment properties provide a passive income stream and are seen by many professionals as a solid long-term investment. So, good on ya for recognizing that! Secondly, once you understand the basic lending requirements for getting a rental home loan, you’ll see that it can be a pretty straightforward, step by step process.

Though rental home loan requirements vary from money lender to money lender, with some being more stringent than others, there are general guidelines to what money lenders are looking at when it comes to the loan approval process. So, here’s a primer for lending requirements for rental properties so you’ll know what you’re getting into before taking that first step into becoming a rental property owner:

*Good Credit Score

The first thing a money lender will consider before lending a rental property loan is your credit score. It’s…kind of a big deal. For mortgage lenders, that three-digit number is an assessment of potential risk. The lower your credit score, the higher of a risk you are to lenders. A low credit score can also lead to higher interest rates.

But what exactly is a good credit score for a rental property loan? Well, you’re really shooting for 640. Of course, with most things in life, the more the better, so if you can bump up that score (pay your bills on time, checking your credit report for errors, etc.), the better you look on paper to money lenders and the more likely you are to get a better deal on your investment property loan.

*Low Debt-to-Income Ratio

A low debt-to-income ratio (DTI) is another must-have when it comes to lending requirements for rental properties. And if debt-to-income ratio sounds complicated, it ain’t. DTI is simply the percentage of your income that is used for debt payments, such as student loans, credit card loans, and car loans.

Unlike your credit score, with DTI, the lower the better. (How low can you go? How low can you go? How…we’ll stop now.) But, similar to your credit score, improving your DTI improves your chances of getting a rental property loan approval. Avoid accumulating any more debt, paying off existing debt as much as you can, and not making any large credit card purchases right before applying for an investment property loan will all help reducing your DTI, making you look more attractive to money lenders.

*Down Payment

Okay, this may sound super obvious, but having the down payment to make on a rental property is BEYOND important when it comes to lending requirements. Cause while a rental property loan allows you to borrow money, you also need to pay considerable sums for said loan. (Look, we said it was super obvious, okay?)

The typical down payment ranges from 20-25% (with 20% being the absolute minimum) of the property price, largely depending on the property type and number of previous rental loan mortgages. The more money you are able to put down, the lower your interest rate for the rental property.

*Cash Reserves

But wait, there’s more!

A down payment isn’t the only money you. When a money lender approvals your loan to buy a rental property, the last thing they want is for you to immediately run out of money after you make that first down payment. A real estate investment loan needs about six-months of cash reserves for future mortgage payments.

Now, here’s a lending requirement for rental properties that real estate professionals don’t talk about. Okay, it’s not a requirement; more of just a really good investment property tip….

When looking for rental property loans, investment property loans, fix and flip loans, or even conventional loans, you’re gonna wanna find a money lender that knows the real estate rental biz and, more importantly, wants to work with you to make sure you get the best deal possible. That’s where The Loan Guys come in.

As rental property lenders, The Loan Guys have a rental loan program that features:

*Up to 80% Loan-to-value on single-family residence, 2-4 units, condos, and townhomes.

*Purchase, refinance, or cash out options available.

*Minimum credit score of 640+ for 1-4 units and condos.

*Loan term 30 years fixed/fully amortized.

*Hybrid ARM options available, 5/1, 7/1, 10/1 Amortized over 30 years.

*10-year interest only option!

*20% down payment required.

*Blanket Loans available.

*NO income verification required.

*NO DSCR option available!

Oh, and this rental loan program makes it easy for real estate investors to acquire their rental property quickly. Closing times take 12-14 days.

Yeah…that’s pretty darn quick.