Investing in rental properties is an ideal way to diversify your investment portfolio. However, real estate properties require a substantial initial investment, so you may need a property loan. There are numerous requirements when applying for a rental property loan. This post highlights the major steps of getting a rental property loan. 

Step 1: Become Eligible 

Start by ensuring that you meet the eligibility criteria for a rental property loan. The first criterion is having a good credit score. Thus, check your credit score through a credit reference bureau. A lower credit score may lead to loan rejection, higher interest rates, and shorter payment duration.

Then ensure you have a low debt-to-income ratio (DTI). The DTI translates to the percentage of your current income going towards servicing debts. If you have a low DTI, avoid debt accumulation and pay off existing loans. It is a sure way to improve your DTI. Lastly, make sure you have the down payment and cash reserve. In most cases, rental property loans attract a higher down payment compared to conventional mortgages. Besides, you may need to raise a cash reserve. A good starting point is a reserve of 6-months mortgage payments.

Step 2: Analyze the Loan Options

Having confirmed that you are eligible for rental property financing, you can start searching for loan options. Analyze the pros and cons of each type of loan based on interest rates, down payment, and credit score requirements. 

Here are the major types of rental property loans available to real estate investors:

• Conventional loans 
• Federal Housing Administration and VA loans 
• Portfolio loans 
• Blanket loans 
• Private loans 
• Home Equity loans

Step 3: Find a Lender 

The next stage is looking for a lender with rental property loan products. Usually, you can approach mortgage lenders like banks, housing finance companies, and credit unions.  Also, search for private or seller financing lenders. Notably, individual lenders will have customized terms and fees that are flexible to the borrowers. For instance, a private lender may seek an equity position in the project for providing financing. 

Step 4: Get Pre-Approved 

Financial lenders normally pre-qualify potential borrowers. Essentially, pre-approval means that the lender has checked your eligibility, and you can qualify for financing. Notably, you will have to provide details on your financial, work, and credit history to get pre-approval. The lender then provides a pre-approval letter to prove to sellers that you are a serious buyer. Finally, proceed to find a rental property that meets your needs and can generate high returns on investment. 

Are you ready to invest in rental properties? Follow the steps outlined above and increase your chances of securing rental property loans.