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Are You Ready to Buy an Investment Property?

Though home prices and mortgage rates have steadily climbed since the housing crash in 2007, it’s still a relatively attractive time to invest in real estate – especially since home prices are expected to rise. If you’re thinking of investing in property, consider the following first:

Do You Have 20 Percent for a Down Payment?

Unlike a primary residence, mortgage insurance won’t cover an investment property. This means you’ll need to put at least 20 percent down to secure traditional financing. If you can manage it, some mortgage brokers will qualify you for an even lower interest rate if you put 25 percent down.

Do You Have a Strong Credit Score?

Experts at recommend a credit score of at least 740 before you consider purchasing an investment property. Otherwise, you’ll find yourself paying a substantially higher interest rate or, alternatively, paying points on the loan. Both mean more expense in the long run, and a greater likelihood of getting underwater on the property in the future, especially if the market takes a downturn.

What Does Your Savings Account Look Like?

These days, it’s more than just your credit score affecting the terms of an investment property mortgage loan. Lenders also want proof that you can survive six months with a vacant rental, if necessary. That means, in addition to a 20 percent down payment, you’ll likely be asked to show cash reserves that would keep your property afloat for six months even with no rental income.

Just like purchasing a primary residence, an investment property is an incredible financial commitment. Make sure your financial house is in order before taking the leap.

Image via Flickr/corporatetraveller

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