Deciding on a secure home loan requires you as the investor and as the home loan applicant to consider the type of plan you need for your budget and your lifestyle.
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Fortunately, we’ve compiled a list of the most common mistakes made by investors applying for a home loan.
Fail to plan is a plan to fail
If you intend to fund your home loan repayments out of your tenants’ rent you’ll need to have a backup plan in case there is a low in the rental market. Moreover, you also need to research the types of home loans available to you and consider which one is most effective for your investment. An easy way to get around this is to let a Lendi Home Loan Specialist do the hard work for you. Find the right loan for your investment in seconds with Lendi.
Check your credit score
Before you even consider applying for an investment property loan, obtain a copy of your credit file. This can be ordered for free from credit reporting agencies such as EquiFax (formerly Veda). You can confirm that all your information is accurate. If it is not accurate, you can contact the credit provider to remedy this. Some lenders may consider borrowers with an adverse credit history, however some companies can look to repair a credit file and negotiate with your creditors on your behalf.
You can’t do it all
When it comes to being an investment property owner, time plays a crucial role. If you have applied for a home loan counting on the fact that your repayments will come from tenants rent, can you afford for your property to not be on the market for 4-6 months as it undergoes the renovations? If you can afford repayments without a tenant occupying the house, are you financially able to pay off your home loan whilst paying for the renovations?
Whilst choosing an ugly house that does need a few renovations can offer a great investment opportunity. You will need to make a clear financial plan and schedule before you make the property purchase to ensure your own security. It is also important to be honest with yourself about the level of renovating skill you actually have, whilst we all love to think we can do it all, sometimes it’s best to leave it to the professionals!
Don’t shop until you have a budget
While you may have your eye on a particular property, think with your head, not your heart. Choose an investment property loan that suits both your lifestyle and income. You can obtain a pre-approval for finance which provides you with the assurance that you can proceed with a purchase within a particular budget.
An investment property is about you benefitting financially, and so you need to think smart about your budget and how much is reasonable for you to spend on a property that you will not be living in. Think practically about what renters need and what attracts them, instead of getting caught up in excessive interior details that do not add much value to the property and do not ensure rental success.
Don’t apply for everything
Whilst it is important to shop around for a home loan to remain competitive, too many credit enquiries can result in an unsuccessful application. Each time an application is submitted, an enquiry is recorded on your credit file. This impacts your credit score where a lender might see that you are frequently seeking credit or that you may have been declined for credit.