If you’re looking to buy an investment property, you’ll need an investment home loan. It can take time to get an investment loan approved and this can be stressful if you have to make an offer fast. Here are seven tips to help your application go smoothly and save you time and stress.
1. Know what you can afford
It’s important to have a clear idea of what you can afford to pay before you apply for an investment loan. A declined loan application can affect your credit rating and this may damage your ability to get a loan in the future.
Take a good look at your income and outgoings as well as any other debts or loan repayments. Not sure what your repayments will be? You can get an idea here.
2. Check your LVR requirements
Loan to value ratio is an important factor in deciding what loan and interest rate you are eligible for. The loan to value ratio is the amount of the total value of the property you want to borrow. The bigger your deposit, the lower your LVR will be.
Some lenders won’t lend to you if your LVR is more than 80%, but others – like Bluestone – will. There may also be extra risk fees or lender’s mortgage insurance (LMI) requirements with an LVR over 80%. Not all lenders charge LMI so it pays to look around – at Bluestone we don’t.
3. Make sure the property meets your lender’s eligibility requirements
Found your perfect investment property? Before you get too carried away, make sure it’s one that your lender will accept. Most lenders have property type and size restrictions, as well as limits on the location. For example, at Bluestone we only lend for established houses or units (no more than 10 floors high for units).
4. Check your credit history
When you apply for a loan your lender will perform a credit check. Some lenders will automatically decline any application below a minimum credit score. If your credit history is less than perfect, look for a lender that won’t credit score – like Bluestone.
Whether they credit score or not, all lenders will want to know about the history behind any previous defaults or late payments. This is to get a better understanding of your financial situation and make sure you’re able to meet your future repayments.
5. Get your documentation together
When you apply for an investment loan, you’ll need to prove your identity as well as your income and expenses. You can speed up the process by having your paperwork all ready to go.
While it varies, most lenders will want to see your recent bank statements, payslips, tax returns and details of any other income or expenses.
6. Decide between principal and interest or interest-only
When you buy an investment property you can choose to pay only the interest on your investment home loan for a set period of time (usually 3-5 years). You’ll pay less during this period but you will end up paying more interest over the long term.
When deciding, it’s a good idea to get professional financial advice and make sure you have a solid plan for once the interest-only period is over.
7. Don’t apply for pre-approval too soon
Pre-approval can give you a sense of your budget and show potential vendors and real estate agents that you’re serious. Having pre-approval can also save you time if you do find a property you want to make an offer on.
Pre-approval is only valid for a set time (at Bluestone it’s two months from the time of approval) – after this period you’ll need to apply again. You don’t want to do this too often as each application shows as an enquiry in your credit file. Too many enquiries can have a negative effect on your credit score.