Where Should Your Credit Be If You’re Purchasing Your Third Home?
Borrowing for real estate investment purchases can be complex. While you can take out conventional Fannie Mae mortgages on up to 10 homes, this comes with strict regulations. Borrowing for the first 6 of these have certain qualifying criteria. Securing regular funding for more than this means you‘ll need to meet additional requirements.
One thing that’s similar for this type of borrowing for either your 1st, 3rd, or 10th home (or any other between 1-10) is your credit score. A score of at least 620 is essential—and for properties 1-6 the closer it is to 680, the better.
Credit Scores, Mortgages, & Hard Money Lenders. Why Your Credit Score May or May Not Matter
- Where should your credit score be if you’re purchasing your third home with a conventional mortgage?
- Where should your credit score be if you’re purchasing your third home by borrowing from a hard money lender?
Where should your credit score be if you’re purchasing your third home with a conventional mortgage?
When it comes to getting a traditional mortgage for any of your first 6 purchases, you’ll need to meet the following criteria:
- A credit score above 620: The closer it is to 680 will further help your application.
- Borrowing requirements of up to 85% of the purchase price: This is known as a loan-to-value or LTV.
- Proof of income: This could be from employment, self-employment, current rental properties, dividends, etc. Your tax return and/or W-2 will provide this.
- Other investment property information: Financial statements listing these (if you have them).
- A statement detailing your assets and financial liabilities: This should include details of any other mortgages you hold.
This list is by no means definitive. Individual lenders may request additional information to prove that you’re able to handle the repayments.
For properties 7-10, you’ll have to meet even stricter legal requirements, such as:
- A minimum credit score of 620.
- No payment arrears in the last 12 months on any of your properties.
- A minimum of 2 years of tax returns from your rental properties.
- Proof of at least 6 months cash reserve to cover all your outgoings, taxes, insurances, etc.
- The funds to pay anywhere from 15%-30% of the property price.
- No bankruptcies or foreclosures for a minimum of 7 years.
- A 4506-T form (for taxation purposes)
Real estate investors don’t, however, have to rely on Fannie Mae mortgages to grow their property empire. So-called, hard money lenders are often the best way forward—especially if you’re looking at the BRRRR (buy, rehab, rent, refinance, repeat) model.
Where should your credit score be if you’re purchasing your third home by borrowing from a hard money lender?
Although you’ll pay a little more interest on a hard money loan, the reason they’ve become so popular for real estate investors is their accessibility. Your credit score, income, assets, liabilities, or any of the other above-mentioned requirements don’t even enter the equation.
Instead, the loan is agreed (or not) solely on the potential of the property. If you’re buying a reno project then, as long as you have between 20%-30% down payment, the finance is issued according to the rent you’ll charge your future tenants. It doesn’t matter if this is your first real estate purchase, your 3rd, 10th, 20th, or more, every loan is individual to that property.
So, there you have it. Asking where your credit should be if you’re purchasing your third home is certainly not as straightforward as saying 620. The options for anyone wanting to invest in real estate can be as simple as having the funds to pay 20% of the property upfront. Borrowing from a specialist hard money lender could well be the solution for those looking to build a valuable property base and grow an investment over the medium to long term.
Explore the Art of the Possible with BRRRR Loans
Real estate investing isn’t solely the realm of the uber-rich. More and more “regular” folk are quietly getting their own piece of the action—securing their and their family’s future and making a pretty penny along the way.
BRRRR Loans is one of the best lenders in the business. From your first fix & flipper to your third, fourth, fifth, or more BRRRR property, we’re the savvy investor’s first choice to grow a real estate portfolio.
Discover more at https://www.brrrr.com and get in touch today for a no-obligation chat.
Buy, Rehab, Rent, Refinance, & Repeat. A nationwide direct lender to real estate investors. If you have a project that needs to be funded, you’ve come to the right place.