Mortgages for Investment Properties
Investing in Toronto area real estate is a great way to plan for the future and build equity. Before jumping in, it’s smart to work with an experienced mortgage agent to map out a strategy to help you maximize your returns and qualify for the lowest available mortgage rates.
It all comes down to presenting yourself as a low-risk client, one that lenders want to do business with.
Your InTrend Mortgage agent will walk you through the 6 key factors to help you qualify for a mortgage for your investment or rental property.
1. Plan ahead
Before making a purchase, ask yourself “What are my long term goals?”
Having an idea of how many properties you wish to buy, where you want to buy them, and how long you want to own them for is important. Share this with your mortgage agent, and let them help you find a mortgage plan to help turn your goals into reality.
2. Check your credit
In order to secure the financing you require, you will need to show a solid track record of debt repayments with other creditors – car loans, credit cards, etc. If you want to gain a clearer picture on your current credit standing, apply for a credit report from Equifax.
3. Prove your income
As with any mortgage, lenders will want to see proof that you have the means to repay your loan. If you are a salaried employee, you’ll need to show a recent letter of employment and pay stubs. If you are self-employed or paid on commission, you’ll need to provide proof of income going back 2 – 3 years. You may also be asked to provide any relevant T4s, NOAs or business financial statements.
4. Prove your down payment
When purchasing an investment property, you will typically need to make a down payment of 20% of your purchase price. Some lenders may permit a 15% down payment, but will charge higher interest to do so. Regardless, you will need to provide statements indicating that you have been in possession of your down payment funds for at least three months.
If funds are coming from a line of credit, you will need to have this in place of advance of making any purchase. If you are counting on funds from a real estate sale, you will be asked to provide a firm purchase agreement. In all cases, lenders will want to see complete documentation.
5. Gather all the details
When applying for an investment mortgage, you’ll need to provide an MLS listing, Purchase and Sale agreement, applicable waivers, any applicable leases and an appraiser’s letter confirming the price of the property.
If you own other properties, you’ll also need to provide mortgage statements and lease agreements if you have them. The key here is to show that these properties are cash flow positive, and if they aren’t, that you can comfortably cover any shortfall.
6. Don’t forget the closing costs
Even for experienced real estate investors, closing costs may be overlooked during the planning stages. Keep in mind that on top of your down payment, you’ll need to pay an additional 1.5% of the purchase price to your lender on closing.
A good idea is to set up an emergency contingency fund, or Home Equity Line of Credit (HELOC) to ensure you have the funds when you need them.
Let InTrend Mortgage get you the keys to your investment or rental property
Call an InTrend Mortgage agent today at 905-780-8988 to explore your options for purchasing an investment property to start building toward your financial goals.