Pre-Qualification for Real Estate Investor Loans We are proud to offer competitive real estate investor loans through our Joe the Investor program. When clients come to us for these loans, however, they tend to ask some very common questions. Today we will answer one of those questions in detail.
“What do I need to get pre-qualified for a real estate investor loan?”
3 Tips on Getting Pre-Approved for Real Estate InvestmentTo get on your way to a “fix and hold” property, follow these three easy tips.
Get All of Your Financial Information TogetherIt pays to be organized when applying for an investor loan for real estate. If you don’t already keep all of your financial information in one place, then this is a great time to get organized. Here’s what we’ll need to see:
- Tax Returns – We require your tax returns from the last two years. (Remember, Texas is a community property state. This means that if you and your spouse filed separately, we will need to see both tax returns.)
- Pay Stubs – We require two months of recent pay stubs. If you’re self-employed, then don’t worry, bank statements are next.
- Bank Statements – We require two months of bank statements. If you’re self-employed, then this is especially important.
- Retirement Accounts – Having an IRA, 401(k), or other retirement plan, will increase your likelihood of approval.
- Assets – Although you are not required to disclose your stocks, bonds, securities, or other assets, doing so will also increase you chances of pre-approval.
Credit InformationThis “combination loan” starts as a hard money loan, but quickly converts to conventional loan mortgage. This conventional mortgage component requires that borrowers demonstrate a standard of creditworthiness. Generally speaking, this means a score of 670 or higher. There are a number of free tools out there that can help you stay on top of your creditworthiness. For viewing your credit score, report, and understanding what it means, we recommend Credit Karma.
Debt to Income RatioFinally, we look at your debt to income ratio (DTI). Reducing your DTI to 38% or less helps significantly increases your ability to secure a real estate investor loan. You can look at this in two ways:
Monthly Income x 0.38 = Max Monthly Debt Payments.
Monthly Debt Payments / Monthly Income = Debt to Income (DTI)
Generally speaking, if you make $5000 a month, a 38% ratio means that you spend no more than $1900 a month towards paying current debts.