Buying an investment property can be a great way to grow your wealth through real estate. However, getting approved for a mortgage with bad credit can seem daunting. The good news is that there are strategies you can use to improve your chances of getting approved. First, work on improving your credit score by paying down debts and correcting any errors on your credit report. Next, save up a larger down payment of 20-25% to show your commitment. You can also consider applying with a co-signer who has good credit or looking into alternative lenders like private money lenders. Finally, highlight other positive factors like your income, assets, and real estate investment experience. With the right preparations and approach, buying an investment property is possible even with less-than-ideal credit.
Save up a substantial down payment of 20-25%
Lenders look more favorably on larger down payments, as it shows your commitment and reduces their risk. Come up with at least 20-25% for a down payment on the investment property by cutting expenses, getting a side job, or tapping other assets. This can make up for issues with your credit.
Find a co-signer who has excellent credit
Ask a family member or friend with stellar credit to co-sign the mortgage with you. Their good credit essentially helps offset your bad credit in the eyes of lenders. Just be sure the co-signer understands they’ll be responsible for the loan if you can’t pay.
Explore alternative lenders like private money lenders
Private or hard money lenders specialize in lending to those with less-than-perfect credit, for a higher interest rate and fees. The rates aren’t ideal, but they may be your only option. Reach out to private lenders to see if they’ll finance investment property for you.
Highlight other positive factors to offset your credit
Beyond your credit score, lenders also look at your income, assets, reserves, and real estate experience. Play up your strengths in these areas through documentation. For example, provide tax returns showing consistent income and bank statements proving you have ample reserves.
Getting approved for an investment property mortgage with bad credit requires creativity and perseverance. But with a substantial down payment, co-signer, or private lender, and by emphasizing your other strengths as a borrower, it’s possible. With the right property and approach, you can still leverage real estate to build long-term wealth.