Finding a reliable, professional mortgage broker is one of the best things you can do for your property investment career. A good mortgage broker will help you to find the most appropriate loans for your investment goals and minimise your risk.
As you search for a mortgage broker, ask for recommendations but don’t neglect the important step of interviewing the broker yourself. You’ll want to be sure you communicate well and establish a productive working relationship. Details are everything when it comes to securing a loan for investment property. Use the following 10 questions to learn all you can about a potential loan and the broker you’re hoping to use.
1. What fees are associated with this loan?
Many loans have one-time fees, sometimes called “points,” and these fees are due at closing. If you’re looking for a lower interest rate, you may want to consider paying “points” up front. If you don’t have much cash on hand, however, you might consider paying lower closing fees in exchange for a higher interest rate.
2. What is the interest rate?
Interest rates depend on a variety of factors, including the current market, your credit, the mortgage balance, and the loan term. You can sometimes lower your interest rate by improving your credit.
3. Does the loan have a fixed rate or an adjustable rate?
Most property investors prefer fixed rate mortgages because they can use them to more accurately calculate cash flow over a long period of time. In some instances, however, adjustable-rate mortgages (ARMs) can help you to get into a property with less money.
If you consider an adjustable rate, it’s important to find out how often the rate will change and by how much. Rates tied to the index tend not to fluctuate too wildly, and there are usually caps for periodic increases. It’s wise to calculate the maximum amount you’d have to pay to find out if you can manage the risk.
4. What is the monthly mortgage payment?
Be specific when you ask this question. The monthly mortgage payment usually consists of more than just principal and interest on the loan. It may also include insurance and taxes on the property. If you’re a first time property investor, it’s often a good idea to ensure your rental income is higher than your monthly mortgage payment, to leave room in your budget for unexpected costs like maintenance and repairs.
5. Are there prepayment penalties?
It’s important for real estate investors to maintain enough flexibility that they can take advantage of interesting projects in the future. That’s why you’ll want to find out if there are penalties for paying off your loan early. Whenever possible, keep all of your options open.
6. Does this loan require mortgage insurance?
Loans for investment properties can often require at least 20% for the down payment, and mortgage insurance isn’t generally required for loans that have loan-to-value (LTV) of 80% or less. But it’s always wise to check because mortgage insurance can add significantly to your total monthly bill.
7. What are the down payment requirements?
Different loans require different levels of down payment. Most require at least a certain percentage of the total loan up front and some loans require proof of income in addition to reserves.
8. Whom do you represent?
A lender that represents a bank or a finance company may try to persuade you to choose a loan that may not be in your best interest. It’s best to work with a broker who has access to several different loan products so you can get the one that’s best for you.
9. What’s the timeline like for this loan?
Timing can get tricky when it comes to real estate. The seller has a timeline of his or her own, and you have a timeline as well. Finding a lender who can be flexible on timing can make your transaction much smoother.
10. How many loan options can you offer me?
In order to reach your goals as a real estate investors, you need access to many different lending options. In some cases, a short-term loan (10 to 15 years) will work best. In other cases, a 30-year ARM will be just what you’re looking for. Find a lender that can offer you a variety of different loan products so you can get just what you need.
Learn more about the funds you’ll need to build wealth through property with our DIY Guide to Property Investing: