For every would-be buyer that is complaining about new investment property guidelines, not a lot has changed over the past few years. You may not agree with the down payment or the credit score requirements, but you should have known for some time what is needed and when it is needed by. This can change based on what type of property you buy and its exact purchase price, but in today’s market to buy any type of non-owner occupied property the guidelines are fairly similar from bank to bank. If you are seeking approval, it starts with your credit score and available reserves.
It is hard to believe, but at the height of the real estate boom there were actually investment programs with credit scores as low as 620 without having to document any income. Those programs are long gone, with 720 being the minimum credit score for the past few years. That score is based on the middle of the three credit agencies that report scores: Transunion, Equifax, and Experian.
There are very few, if any, lenders that you can finance an investment property with that will go below that magic number. This has to be your starting point. If your score is below that number, you need to get a copy of your credit report and see where you can reduce any high balances or talk to someone about improving your score.
The next major factor towards approval is your available assets. Simply having the money available at the closing is not enough. If you are looking for bank financing, this money has to be in your account for a minimum of two months and most likely closer to six. If you are transferring this money from an existing account you need to document and paper trail where it came from and where it is going. All investment programs require your own funds, so gift money is out of the question. If the money is not in the account, even if it is yours, the deal could be in jeopardy until the seasoning requirement is met.
In addition to seasoning this money, lenders want to see that you have money in reserves, on top of the down payment. Having at least two months of the proposed mortgage payment should do the trick, but you should consider transferring more if you have it. Without these assets, even with a substantial down payment and sterling credit score, it may not be enough to get an approval. Lenders want to see that you have the ability to withstand a missed rent payment or to replace a furnace if need be. Having the exact amount is not enough.
Once you know what you need, you should be able to work on getting everything in place. Be ready to supply your lender with documentation for every account you are using and every source of income on the application. The mortgage approval process doesn’t need to be difficult if you know what you need before you start.
