The process of seeking real estate investment property can be quite tricky. First, you need to be eligible for a mortgage with preferable terms and conditions. Not only do you need to qualify for financing, but you prove that you are a ‘low risk’ client as well. The goal is to get proper funding that you can pay back in the long run. All these can only happen with the proper preparations. Keep on reading to find out how to qualify for investment property financing.
Start with a Game Plan
The real estate investment process starts with a game plan. This entails knowing your long-term investment goals. Are you planning to invest in one property or several others? Are you interested in a particular area or several different locations? It’s wise to sit down and think about your investment goals. If you aren’t sure, you should seek help from a professional financial advisor to guide you in the process.
Check and Assess your Credit
Ask for a copy of your credit report from credit bureaus and see your credit standing. Before you can bet with lenders, they’ll review your application and check your credit status to see if you’re eligible. Your goal here is to demonstrate that you have a good track record of payments and good transactions with creditors. The better your credit is, the more options you will have for financing.
Provide Proof of Income
Your lenders will need to know where you’ll source out your payment. This can be based on your employment or business, if you have any. It’s better to come prepared. If you’re employed, prepare your letter of employment, pay stubs, copies of your most recent Notice of Assessment (NOA) from CRA, and possibly, your completed T1s or tax returns. If you are self-employed, provide proof of income for the last two to three years in the form of NOAs, and possibly T1s or Financial Statements for your business, as well as proof of business (business registration or a website URL).
Show Proof of Down Payment
In most cases, down payment is required for property purchases. Typically, you’ll have to shell out 20 percent of the purchase price of the investment property. Your lender will be looking for proof that your down payment isn’t borrowed. If you’re getting your down payment from a bank, then you’ll need to provide banking statements. If you plan on advancing funds from your home equity, you will need to supply statements showing the amount advanced and deposited to your bank account. If the money comes from the sale of another property, the lender will look for documentation and paperwork.
Prepare Closing Costs
Apart from the down payment, another important financial aspect is your closing cost. In most cases, you’ll need to show at least 1.5 percent of the purchase price in closing costs to the lender. You’ll also need to have a contingency fund set aside that will help you deal with unexpected expenses. Examples of these include a Home Equity Line of Credit or money in a savings or brokerage account.
To qualify for property investment financing, you need to have adequate preparation. In the end, you should invest in the property of your preference and get the most out of it.
If you’re looking to buy a home in Toronto, get in touch with us today! We have extensive experience in finding world-class properties across Ontario.