There are a whole lot uncertainties that come with trying to get an investment loan. Things like:
- Do I qualify for an investment loan?
- How is an investment loan different from a startup business loan?
- How much can I actually get in investment funding from a lender?
- And lots more.
All these are things that you need to come and understand first before even opting to get an investment loan.
Investment Financing vs Investment Loan
We are all conversant with loans.
We know that a loan is simply money that is borrowed for a specific purpose best known to the borrower and to be paid back with interest over an agreed set time.
On the other hand, an investment loan is a more specific kind of loan.
It is the kind of loan taken with the sole-purpose of financing the purchase an investment property.
A very good example of an investment loan is a mortgage.
Investment loans are usually considered as one of the easiest to get. This is because they are generally used to finance the purchase of real-time assets such as land and real estate.
Investment financing is the only kind of financing where banks, credit unions and generally lenders will give you the majority amount of money to invest and you get to keep 100% of your profit.
This is because investment financing, especially property financing is one of the safest form of financing to lenders. It offers better security to lenders.
We are talking about brick and mortar here – something that is tangible! That is, you can live in those property, you can get steady cash flow with them from rent, refinancing, and lots more.
Thus, if you are a sort of person that is risk-averse, then investment financing is the easiest and most safest way for you to get started, in terms of building a business.
How to Get an Investment Loan
Investment loans must only go toward what you are investing in.
Thus, you as the investor must make sure that the yield on your investment must always be greater than the loan cost.
Investment loans are ordinarily a higher risk than other standard loans, and as such, you will need to be in a good financial position to qualify. There are several types of investment loans with different parameters, but there are general requirements for getting a loan.
The basic requirements to get an investment loan include the following:
- Proof of employment
- Credit history and score
- Debt to income ration (DTI)
- Down payment
Proof of Employment
To measure up for an investment loan, you must show proof of verifiable employment with a steady income from the same job for up to two (2) years.
This proof helps lenders comprehend that you have a secure income to sustain the loan offer.
If you work part-time, on commissions, or tips, you should be prepared to show more than two (2) years of employment history to your lender.
Credit History and Score
A good credit history is one major requirement to get an investment loan. Having a relatively bad credit score would make lenders delay or show no interest in approving your loan request.
Debt to Income Ratio (DTI)
DTI plays a really significant part in you trying to get an investment loan.
It is a metric used by lenders to assess the total amount of debt you are taking (or have taken) on against your income and other debt. This way, they would know if you will be able to pay back the investment loan.
At a minimum, your DTI should be below 50% (preferably less than 36% to get an investment loan).
While the down payment requirement differs depending on the type of loan and lender, the more money you resolve to put in advance, the better.
This will help to decrease the amount of cash you will pay as interest.
Loans and Investment: Applying for an Investment Loan
Before applying to get an investment loan, first make sure that all your documents are correct with up-to-date information.
Cumulate all the documents and information you will need along the way.
Documents such as your personal identification, Social Security card or passport, driver’s license, proof of residence, utility bill that holds your name and address, and all others might be required when applying to get an investment loan.
Thus, the following steps should be taken when trying to get an investment loan:
- Start by establishing how much cash need for the investment. This is a smart move for any investor.
- The next step involves verifying your current credit score or rating to confirm your eligibility status. Although most lenders would run a credit check to ascertain how likely you are to repay the loan off, it’s always good that you get to know this by yourself.
- If you are found creditworthy and have met all the least qualification requirements, you might need a co-signer to get approved for an investment loan. If there is no co-signer, or the lender doesn’t consider co-signers, you may have to choose between getting a secured loan or an unsecured one. If you don’t meet the qualification requirement and your investment can wait, take some time to build your credit score so you can be qualified next time. If not, you will need a co-signer, a secured loan, or a bad credit loan to better your chances of winning.
- Once you have viewed your options and now know where your credit stands, determining the best type of loan for your investment financing becomes very crucial. Some lenders can be flexible with how the funds are used, while some approve loan applications if the funds are used for only a specific purpose. It is smart to find a comfy lender loaning you funds for the same purpose you need it.
- Take your time and look for the best possible interest rate. Don’t always settle for the first offer you receive. Try to compare several lenders with their loan types to get an idea of what you qualify for.
- Now, when applying to get an investment loan, it’s important provide all the necessary documents and details to your lender.