Have you decided to purchase an additional property as an investment? Do you have the capital or are you looking for a mortgage? If this is your first journey into the real estate investment world, working with a mortgage broker is your best bet to help you get started in this potentially lucrative world. These are a few things you should know, based on my experience as a financial advisor, before you move ahead with your investing adventure.
You should get pre-approved for a mortgage similar to when buying your first, second, third, or fourth home. When applying for an investment property, you must also provide all the required documents to get pre-approved for your mortgage. You must prove to your lender that you have the financial stability to provide mortgage payments on time. After all, they are loaning you money, so they want to ensure that their investment in you will be secure.
What you will need to know before getting pre-approved for your investment property mortgage
A mortgage lender will want to verify:
- That you have a stable job;
- Whether you will make enough money to realistically be able to pay back the mortgage in the time frame outlined;
- If you have bad credit or good credit;
- Whether you have enough money set aside to cover additional costs including closing costs, land transfer tax, and monthly utility expenses;
- If there are any existing or past loans that you haven’t paid back.
To get pre-approved for a mortgage on your investment property, you will have to provide:
- Identification – your driver’s license or passport;
- Employment verification – a letter from your employer or your last 3 paystubs;
- Proof of income – a copy of your last income tax return;
- Proof of assets – statements of your RRSP investments or your bank account;
- Credit score verification – your mortgage specialist can run a credit check;
- Other documentation – copies of existing documents for outstanding loans, like student or car loans.
What to avoid doing before/while getting approved for a mortgage on your investment property
Don’t change your job: Lenders want to see a steady job history when looking at your application. Normally at least 2 years of steady employment will suffice. However, if you’re frequently changing jobs, you could be labelled as a risk for lenders. If you must change jobs, be sure it’s in the same industry you are currently working in.
Don’t apply for new credit: Your debt level and available credit are both major influencers in the mortgage approval process. So avoid co-signing for friends or family and don’t apply for new lines of credit or credit cards.
Don’t make other major purchases: Between pre-approval and loan finalization, avoid any major changes to your finances. If you do make a big purchase, it can result in a loan rejection. If you plan on buying other investment homes, you must provide even more documentation to ensure your financial stability.
Don’t just go to your bank and settle on their mortgage rate: When getting pre-approved for a mortgage, don’t walk into the first bank you see and accept their mortgage pre-approval. Every lender is different, which means what you get approved for by one lender can be very different from what another lender is willing to loan you.
What’s different about getting pre-approved for a mortgage on an investment property?
In addition to your primary mortgage, there are also investment property mortgages and second mortgages. It can be challenging to obtain mortgage approval for an investment property, or a second home, depending on your financial situation. Lenders view you as being a greater financial risk when you apply for a second mortgage, so they tend to require more documentation and larger down payment than you paid on your first home. That’s why it’s important to have all your documents laid out. After all, you want the best deal possible as having low mortgage rates can help you save lots of money.
Why working with a mortgage broker is your best option
Working with a mortgage broker is free! There is no additional cost for a mortgage broker’s services, and they will help you find the lowest mortgage rates possible. They do all the investigating, while you can focus on your investment property house hunt. Knowing the amount you can afford helps you narrow down your search.
Getting pre-approved before hunting for your investment property is important because, in a competitive market, if you wait too long, someone else may scoop up the home you have your eyes on. It also helps lock in your mortgage rate which is convenient if you think that mortgage rates are going to jump higher.
I can help you get pre-approved for a mortgage on an investment property and will get you the lowest mortgage rate. As a reputable mortgage broker providing years of experience in the Barrie area, I can help you along in this exciting journey. Contact me, Darren Robinson, by giving me a call at 705-315-0516, schedule an appointment with me online or send me an email to discuss how I can help you get started on your investment property adventure.