The credit score needed for mortgage loans has changed substantially, due to the real estate bubble and the sub-prime crisis of 2007-2011, started off as a year of change where lenders started making the lending conditions more and more stricter, and the first thing that was adopted was a higher credit score requirement to sanction the real estate loans such as mortgages and home loans. The credit score needed for mortgage approval has been bumped up by lenders in order to avoid another sub-prime crisis, and prevent some of the losses that were incurred in the recession.
Prior to the recession, several lenders gave off loans for much lower credit scores, which of course resulted into losses. The logic behind sub-prime lending is, a mortgage is a secured loan, and the price of real estate is almost always on the rise, which makes it easy to recover defaulted loan. However, in the recession, when real estate prices fell lenders went into a substantial loss. Hence, today, the requisite credit score to get a mortgage have been made much stricter. On a credit score rating scale, 620 is the mid-point of all the mortgage underwriting procedure.
The FICO scale which extends from 300 to 850 has 300 as the lowest score, and from a mortgage loan prospective, 300 to 620 is a bad credit score with sub-prime risks. In contrast, as we go above 620, which is the average credit score, the rate of interest and loan approval become better and better. The ideal credit score would be 850, since it will get you an assured approval and the lowest interest rate. Anything above 700 will be considered a good credit score for mortgage.
You’ve decided to buy a rental property. You’ve set your budget. You’ve browsed rental property listings online and visited more properties than you can count. Now you’ve finally narrowed your search down to one property in particular. Now what? Once you’ve found the home of your dreams, bidding on a property can be a straightforward process.
However, you should make sure you understand a few key tips before you put an offer down on the property you intend to buy.
A property, has multiple aspects for a seller and buyer to put different valuations on. Introduce a lender into the picture, and then you have a third option on valuation to deal with as well. Determining rental property market value is different than determining market value for a residential property. In a residential valuation you can simply look at other recent comparable sales in the area, of similar homes and lot sizes, and determine about what a property is worth at any given time.
The issue you will find with rental property is that they tend to be one-of-a-kind properties, and you may not be able to find many local comparable sales in recent times. One major difference between residential and commercial properties is their location and their use. If you are looking at a property located in high demand areas like inside of the city limits, with a huge potential for non vacancy, then you have a very valuable property. If you purchase a property at an agreed upon price, will the rents support the costs?
What if your property sits vacant for a month or two? These are things you need to think about prior to purchase.
Get prequalified for a loan. You should always get prequalified for a rental property mortgage loan before you put an offer. Whether you are borrowing from a bank, a credit union or another institution, getting preapproved for a loan informs you of roughly how much you can potentially borrow and comfortably afford. Also, have all preapproval paperwork in-hand to present to the seller with your offer.
This will make your bid much more attractive. Know your property-buying rights. Before you bid for a property, you shoul
d understand all your rights as a buyer. For example, did you know you can hire your own home inspector to come in and take a look around before you make an offer? While an inspection is usually required between price negotiations and the closing date, you can use this early inspection to help you decide how much you’d like to offer in your initial bid.
Although this extra inspection is optional and would be an additional charge you would incur, it may be a useful tool in the negotiating process. Understand the extras. Did you know that you can negotiate closing costs, escrow periods, points, down payments and which appliances, fixtures and amenities are included in the deal? All these factors come into play when deciding on the amount you want to offer. Once you have considered all the factors that go into your initial bid for a house, you’re ready to start the process.
Make your initial offer. Consider any additional concessions you would like the seller to make. Do you want them to pay for closing costs? Would you like them to leave the washer and dryer? Would you like them to decrease the asking price due to a roof that needs repair? All these factors play into how much you are willing to offer and how much the seller is willing to negotiate. In addition, there are a few ways to make your initial bid more attractive to a seller.
Consider your price point and start the bidding process with an offer that gives you room to negotiate. The goal is to stay within your budget even after negotiations have been made, so keep that in mind when making your initial offer. Offer a larger down payment. A larger deposit or down payment indicates that you’re serious about the offer you’ve made. Be willing to be flexible. Whether it’s pushing back the closing date or offering to not move in until it’s convenient for the seller, flexibility is always an attractive trait in the bidding process.