Rental Property Loan: 4 Requirements

In order to get a rental property loan, you will have to meet several requirements first. Most lenders are very strict when it comes to approving people for rental property loans. Here are a few of the requirements that you may have to meet.

1. High Credit Score

One of the first and most important things that a lender will look at is your credit score. Your credit score is a representation of how good of a borrower you have been up until this point. Credit bureaus come up with the score by looking at your payment history, the amount of debt that you have and whether you have used credit. Therefore, for a bank, this makes an easy way to tell if you would be a good person to lend money to. Each lender is going to have their own criteria for the minimum credit score that they will work with. Some lenders might require a 700 credit score, while others might require a 740. Therefore, if one lender tells you that your credit score is too low, you should consider talking to other lenders before giving up.

2. Sufficient Income

When applying for a rental property loan, you will have to be able to prove that you have sufficient income to support the loan and your mortgage. Therefore, the income requirements for this type of loan are usually much higher than when you apply for a traditional mortgage. Depending on the lender that you are working with, they may allow you to count some of the income that you will be bringing in from the rental property. However, it will usually be only a percentage of this potential income that they allow you to count. You will have to do some research and determine how much money you would be charging for rent. They will then factor in something to represent standard vacancy rates. They will want you to be able to afford your mortgage payment and the mortgage payment for the rental property comfortably.

3. Liquid Assets

Lenders will also want to see that you have some liquid assets that you could turn to in case of emergency. If you were unable to continue working for a sustained period of time, the lender would want to see that you could still support both mortgage payments. They might require you to have enough money in savings to cover six months' worth of mortgage payments for both properties. This might require you to start saving well in advance of applying for a rental property loan.

4. Quality Property

If you want to increase your odds of getting approved for the loan, you should look for a quality rental property to buy. Most lenders do not want to invest in properties that need substantial renovation in order to rent out. They like investing in undervalued properties that are in prime locations. These properties are easy to rent out and easy to sell in the future.