If you’re looking for financing for an investment property, your goal should be to show that you’re a low-risk customer. Regardless of your investment goals and how many properties you plan on buying, it’s recommended that you have everything in order before searching for financing. This means you’ll need to have a good credit history which shows you make your payments in a timely manner and can prove your current income.
The best way to find out what your current credit rating stands at is to request a copy of it from one of the Canadian credit companies. If your score is at least 650 then you’re off to a great start, and anything over 680 is where you ideally want to be. However, if you’re below this figure you can take the necessary steps to improve it. It’s no secret that you’ll have a better chance of finding a lender if you have a higher credit score.
Proof of Income
A lender will want to see how much money you make before committing to a loan. They will want to be assured that you can handle the mortgage payments without putting yourself into debt. The best way to prove your income is to show the lender your pay stubs, an employment letter, as well as completed T1 Generals and Notice of Assessments. If you work on a commission basis or are self-employed you’ll almost certainly need to show your tax forms for the past few years as well as notice of assessments and possibly other financial statements and documents which relate to your business.
When applying for a mortgage on an investment property, most lenders will ask for a down payment of at least 20 per cent or more of the purchase price. You may be able to put down a smaller down payment, but this would result in getting private financing in order to do so. In addition, the lender will want to make sure that you haven’t borrowed the money for the down payment. You could be asked for bank statements to show that you’ve had the money for in your account for at least three months. If the funds for the down payment are being advanced from the home equity on your current residence via a home equity line of credit or by increasing your current mortgage you’ll need to do this first. You’ll be asked to show how much was advanced and how much you still owe. Also, if you’re selling another property to raise the down payment the lender may ask to see the agreement of purchase and sale along with a current mortgage statement to determine the approximate amount of proceeds you’ll receive from the sale.
On top of the down payment, the lender will require proof of funds available equalling 1.5 per cent of your purchase price to cover closing costs. At this point, it’s a good idea to have set up some type of contingency fund just in case you run into any unexpected costs or expenses. This can be done with a home equity line of credit (HELOC), which is secured by your home in a savings/brokerage account. If an emergency does arise, you’ll then have funds set aside to deal with it.
Existing Property Information
If you already possess other properties, the lender will want to see the property tax and mortgage statements for them as well as lease agreements if you properties are rentals. This will prove to the lender that the properties provide a positive cash flow or that any shortfall is covered via your employment income.
When it comes to the property you intend to buy, a lender will want to see the MLS listing along with the purchase and sale agreement and any applicable waivers. You may be asked for an appraisal on the property to be completed and/or a lease agreement to confirm the rental income you’ll be receiving from the property.
Finding a Dependable Mortgage Broker
Investing in property is a big step and you want to make sure that you don’t leave any stone unturned. You’ll likely be dealing with a real estate agent, a home inspector, a property insurance broker, an accountant, a real estate lawyer, a property manager and a mortgage broker. If you’re worried about how to find dependable professionals to help you out, we’ll be able to assist you at Mortgagemeister.com. Our team of professional and reliable mortgage brokers will gladly assist you in all aspects of the process and make sure everything is handled in the proper manner. Please feel free to contact us at your convenience regarding anything related to investment mortgages and other mortgage-related matters.