How do you qualify for lower mortgage rates as a first-time investor?

Contrary to advice given to most consumers, telling them to “cut up their cards”, many consumers can increase their scores with a simple change in how they manage their accounts. Why pay a higher interest rate when a lower rate is available on a balance transfer? Or, why not continue to rack up valuable travel points for purchases you’re already making? Many consumers put all of their purchases on one card to earn incentive points and then pay the entire balance monthly. This can occasionally make it look like they are maxing out their credit limits. By simply paying their entire balance 5 to 6 days before their bill cycle cuts off, a lower balance will be reported to the bureaus. This may result in a large increase in credit scores.

There are many other strategies to have lower down payments, by purchasing your own home and then converting it to an investment property 12 months later. If you don’t currently own a primary residence, low down payment programs allow you to put as little as 3% down. As first time homebuyers, down payment assistance is also available. Some programs also allow purchases of 2, 3, or even 4 unit properties and use the rental income from the other units to help you qualify for the mortgage payment. Live in your new primary residence for a year as required for owner occupied financing, and then convert it to an investment property. Then, go buy another primary residence with lower down payment requirements again. Wash, rinse and repeat!

Locating a creative and experienced mortgage originator through agent referrals or through your State Mortgage Professional Association can help you accomplish your short and long-term real estate success. When shopping from lender A to lender B, you may see a small difference in rate / pricing, but identifying an originator who has a pulse on what really impacts rates and where rates are headed can be more valuable than someone simply quoting a morning rate sheet. Should you lock today? Should you float your rate lock? Why? Similar to how the price of oil per barrel impacts the price per gallon at the gas pump, Mortgage Backed Securities impact rates. Your loan originator should be able to explain what impacts your rates the most.

Shorter term loans can offer lower rates, but sometimes clients need the flexibility of falling back to a lower payment. When a financial emergency happens, this can mean the difference between being able to continue making mortgage payments on time or being forced to refinance to a longer term… or worse, being forced to sell a home. Sometimes the flexibility can be a bigger advantage than choosing a shorter term. Strategies of making additional principal payments regularly can also help accomplish similar results by paying less interest over the life of the loan. While most focus on 15, 20 or 30 year terms, creative lenders can offer terms in-between. On a refi for instance, choose 26 years vs. recasting the term out to 30 years again.

Inflation is making huge headlines in the news today. Home prices continue to go up in many areas where demand is still high and housing supply is low. Rents also continue to go up at an alarming rate. A 30-Year Fixed Rate loan is one of THE BEST way to “inflation-proof” your housing payment. Property taxes and insurance costs may go up slightly over time, and homeowners need to budget for that as well as home maintenance expenses. However, continuing to rent will result in your housing costs increasing over time. Purchasing a home will help you gain equity with every payment and home value appreciation over a long period of time. A fixed rate loan is the best way to fight inflation and build long-term wealth.

Many times, improving your property will result in the ability to earn a higher market rent. A cash-out refinance to cover home improvements can pencil out in a cash flow analysis. Additionally, if your investment property has gained considerable equity, leveraging equity to use for a down payment on another investment can be a wise move. While current market rates may be higher than your existing mortgage, oftentimes the increased cash-flow or gain in property values can be a larger motivating factor. Mortgage interest and loan points can also be a deductible expense in many cases, (consult your tax professional), so research the possibility of the tax savings paying for some or all of your investment.