You’ve decided to invest in real estate. Congratulations! Now comes the next step – getting approved for a loan.

This part can be tricky, especially if you’re a first-time investor. There are many things that lenders look at when considering a loan application, and it’s important to understand what they are before you apply.

In this post, we’ll outline some tips on how to get approved for a conventional loan so you can start investing in real estate.

Why you should get conventional home loans when purchasing investment properties

There are a few reasons why it makes sense to get a conventional real estate loan when purchasing investment properties.

For starters, conventional loans tend to have lower interest rates compared to other kinds of loans. This is important because it will save you money over the life of the loan.

Also, these loans are usually for shorter terms than other loans, which means you’ll build equity in your property more quickly. And, if you ever want to refinance your property, it will be easier to do so with a conventional loan.

Moreover, unlike other types of loans such as FHA loans, you’ll not be required to pay mortgage insurance. This can save you a significant amount of money over the life of the loan.

5 sure-fire tips that will get you pre-approved for a mortgage loan

Now that you know why it’s ideal to get a conventional real estate loan when purchasing investment properties, let us look at how you can increase your chances of getting approved.

Tip #1: improve your credit score

One of the first things that lenders will look at is your credit score. If you have a high credit score, you’re more likely to get approved for conventional mortgage financing.

There are a few things you can do to improve your credit score, such as paying off any outstanding debts and making all of your payments on time.

You can also try to get a copy of your credit report from the most reputable credit bureaus in the USA, such as Experian, Equifax and TransUnion, to make sure that there are no errors on it. If you find any errors, dispute them right away. This can help improve your credit score and increase your chances of getting approved for a loan.

What if I have a bad credit score?

If you have a bad credit score, there are still a few things you can do to successfully take out a loan for your investment.

First, you can get a cosigner for the loan. This person will be responsible for making the payments if you default on your payments. Having a cosigner with good credit will help increase your chances of getting approved.

Another option is to apply for government-backed loans, as they tend to be more lenient when it comes to credit scores. But again, you’ll be required to pay mortgage insurance with these types of loans, which can add to your monthly payments.

If you’re self-employed, it may be more difficult to get approved for a loan. This is because lenders often require two years of tax returns to verify your income. In this case, you should get a letter from your accountant that outlines your income and how much you can afford to pay each month.

Tip #2: make sure you have a good income and employment history

In order to get approved for conventional home loans, you’ll also need to have a good income and employment history. Lenders will want to see that you have a steady source of income and can afford to pay your debt with them.

They’d require proof of income, such as pay stubs or tax returns, as these will help to verify that you have the money to support your investments and pay the lender back. This is especially important if you’re just starting out with real estate investment and are using employment income for capital.

If you already have other types of investment properties that are already generating income and want to diversify your portfolio, lenders would be more willing to finance your purchase. This is because they can see that you have a solid income stream to support the loan payments.

Tip #3: make a large down payment

Another way to increase your chances of getting approved for a mortgage conventional loan is to make a large down payment. Lenders would often like to see that you have some skin in the game and are invested in the property.

A larger down payment also means that you’ll have more equity in the property, which can make it easier to refinance or sell in the future. It also means that you’ll have less debt and therefore be less of a risk to the lender.

If you don’t have enough money saved up for a large down payment, you could try asking family or friends for help. You could also look into government programs that offer assistance for real estate investments.

What is the average down payment amount for residential investment properties in the USA?

The amount that you should pay for a deposit will depend on the type of property that you’re buying.

For example, a down payment for a multi-family property could be as low as 15% of the purchase price, whereas a down payment for a single-family home could be 20% or more. This is because lenders view multi-family properties as being less of a risk than single-family homes.

But generally speaking, you should expect to pay a minimum of 20% for a down payment on any type of investment property in the USA.

Tip #4: have a good debt-to-income ratio

Your debt-to-income ratio (DTI) is another important factor that lenders will consider when you apply for a loan. This is the number of your monthly debts, including your mortgage payment, divided by your gross monthly income.

For example, if your monthly income is $5,000 and your monthly debts are $2,000, then your DTI would be 40%.

Lenders like to see a DTI of 36% or less. This shows them that you have enough income to cover your debts and still have money left over each month.

If your DTI is too high, there are a few things you can do to lower it. One option is to pay off some of your debts, such as credit card debts. Another option is to increase your income by getting a promotion or taking on a side hustle. Making these changes can be difficult, but it’s worth it if it means you’ll be able to get approved for the loan you need.

Tip #5: show that you have significant savings

Last but not least, lenders will also want to see that you have significant savings. This is because it shows them that you’re financially responsible and can afford to make the monthly payments.

They may require proof of your savings, such as bank statements or investment account statements. So, be sure to have these ready when you apply for a loan.

If you don’t have enough saved up yet, don’t worry. You can start building your savings by setting aside money each month into a dedicated savings account. Over time, you’ll be able to build up a nice nest egg that will help you get approved for a conventional home loan.

Where to get a conventional mortgage financing for your investments

Now, you already know how to get approved for a conventional loan. It’s time to look for one to get started with your investment journey.

The best way to apply for a mortgage loan to purchase your first property is by working with a company that specialises in this type of financing, such as the Mortgage Shop. On their conventional mortgage loans webpage, you’ll learn how to get approved for their program and how it works.

You’ll also be able to see the different types of properties that they’ve financed in the past and how much money you can expect to receive for your down payment.

When you’re ready, you can fill out an online application, and a representative will reach out to guide you through the process. They’ll answer any questions that you have so that you can make the best decision for your investment journey.

However, as always, remember to consult with a financial advisor before making any major decisions regarding loans or investments.

Conventional mortgage loan FAQs

Q: How difficult is it to get approved for a mortgage loan in the USA?

A: The process of getting approved for conventional mortgage loans in the USA can be difficult, but it;s possible if you follow the above-mentioned tips.

Q: How long does it take for my loan application to be approved?

A: The length of time it takes for your loan application to be approved will depend on the lender with whom you’re working. Some lenders may take a few weeks, while others may only take a few days.

Q: Can I take out multiple mortgage loans for my investments at once?

A: Yes, you can take out multiple mortgage loans for your investments if you qualify. However, it’s important to remember that each loan will have its own terms and conditions that you’ll need to meet.

Q: What’s the average interest rate on a conventional loan in the USA?

A: The average interest rate on a conventional home loan in the USA is around 4%. However, this number can vary depending on the lender you’re working with and your financial situation.

Conclusion

Taking out financing to purchase properties in the USA for investment purposes can come with some challenges. However, if you follow the tips set out in this post, you’ll increase your chances of getting approved for a conventional loan.

We hope this article was helpful in answering your question, “How do I get approved for a conventional loan?” If so, please share it with your fellow investors. And, if you have any questions about something we didn’t cover, feel free to leave a comment below – we’ll be happy to answer.

Good luck with your investing!

[disclosure*]