How to get a loan to buy an investment property?

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Anna90
Posts: 51
Joined: Sat Aug 03, 2013 9:35 pm

How to get a loan to buy an investment property?

Post by Anna90 »

Hi brokers, I am planning to invest in a property. I am thinking about buying a property and renting it out to my colleagues who are looking for a house to rent. A lot of my friends were telling me that banks usually have strict criteria when approving a loan for such purpose. Could you tell me the different criteria I would need to meet in order to qualify for a loan for investment purpose?

FYI – I earn about $60,000 a year as an analyst in a research based company.

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Otto Dargan
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Re: How to get a loan to buy an investment property?

Post by Otto Dargan »

Hi and welcome to the forums Anna90,

Lenders can offer investment property loans for those who want to buy a property for investment purpose.
The approval criteria for investment loans are strict because they tend to be of a higher risk than standard home loans. As a result, you would need to be in a strong financial position to qualify.

Other criteria to qualify for an investment loan include:
  • You should have 5% to 10% in genuine savings.
  • If you are borrowing more than 90% then some lenders like to see equity in other properties (i.e. this is not your first investment property).
  • A good credit history.
  • An above average credit score.
  • Stable employment.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Anna90
Posts: 51
Joined: Sat Aug 03, 2013 9:35 pm

Re: How to get a loan to buy an investment property?

Post by Anna90 »

Oh okay, so when you say 5% to 10% in genuine savings, what exactly do you mean by genuine savings?

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Otto Dargan
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Location: Sydney, Australia
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Re: How to get a loan to buy an investment property?

Post by Otto Dargan »

Hi Anna90,

Most lenders consider the money that you have held in your savings account for a certain period as genuine savings.

Basically, the following can be considered as genuine savings:
  • Money that you have saved in your bank account over the last three months.
  • Money held in a term deposit for over three months.
  • Equity in an existing property (accepted by only some lenders).
  • Shares or managed funds held for three months.
  • Proceeds from the sale of a property (accepted by only some lenders).
In some cases, lenders may ask you to hold the funds for a total of six months to prove that you are able to refrain from spending the money. While other lenders may require your savings to increase over time.

Unless you make some savings of your own, these lenders may not approve your loan. This is to make sure that people do not try to use a gifted deposit as genuine savings. If you are currently renting then some lenders may consider the rent you have paid in the last twelve months as genuine savings.

If you would like to know more about these then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Anna90
Posts: 51
Joined: Sat Aug 03, 2013 9:35 pm

Re: How to get a loan to buy an investment property?

Post by Anna90 »

Oh okay. Thanks for answering my questions. I will call you up in a few days to discuss about my situation and how much loan I may be able to receive from the banks.

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captainjacksparrow
Posts: 37
Joined: Fri Jul 19, 2013 2:45 am

Re: How to get a loan to buy an investment property?

Post by captainjacksparrow »

Hi there, I am also planning on buying an investment property. You mentioned something about credit score. What does a credit score actually mean and is there a way to figure out this score?

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Otto Dargan
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Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: How to get a loan to buy an investment property?

Post by Otto Dargan »

Hi captainjacksparrow,

A credit score is an automated assessment of how risky your loan application is to a potential lender. The information from your loan application and credit file is used to calculate the credit score. If you are unable to meet the lenders minimum score for approval then your application may get declined.

You can use the Credit Score Calculator to check your credit score and see if it is high or low. This calculator uses method similar to the ones used by the banks and other lenders.

Please note that this is only an estimate and it should only be used as a guide.

Some of the common causes for a failed credit score can include the following:
  • Bad credit history.
  • Lack of genuine savings.
  • Missed or late payments.
  • Instability of address or employment.
In most cases there may be two or three aspects of your application which are causing you to have a low score. You can improve your score and apply for a loan again if you are able to correct these problems.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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captainjacksparrow
Posts: 37
Joined: Fri Jul 19, 2013 2:45 am

Re: How to get a loan to buy an investment property?

Post by captainjacksparrow »

Oh okay, thanks for clearing this up for me. I know a lot more about credit score now because of you. I appreciate you sharing all this info with me.

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