Rental Loan Application: First Steps

Are you looking to purchase properties and become a landlord? New real estate investors should consider financing options to cover the costs. Applying for a rental loan from a private lender or hard money lender can be tricky but Lending One offers some helpful tips to get organized and ready for success during this unfamiliar process.

Rental Loan application steps

Take a financial snapshot

Know where you stand when applying for a rental loan. Provide the important information such as income, debts, assets, and cash flow and make sure to account for concerns like cash reserves and emergencies. Use this snapshot to compare the prices of the rental property, estimated payments, property taxes, fees, and down payment amount.

Gather your documents

After researching how much loan you can afford, you need to collect proof to back up your position. “Every lender is different,” said Lending One, “and will require their own documentation or information determining approval for financing.”

There are several general documents lenders may require when you’re applying for a rental loan. These include:

• W-2s—applicants should have two years of forms ready to go
• Pay stubs—lenders will probably want to see the two most recent pay stubs
• Federal Tax Returns—in addition to W-2s, lenders may want to see two years’ worth of federal tax returns to show back up income from other sources, including social security, child support, alimony, and commissions; without this, lenders may not accept the application
• Spousal income—these may be taken into account by lenders for loan purposes, and if so the spouse will be required to present the same documents as listed above

Asset documents are also essential in the rental loan application process. These include:

• Bank statements—the last two months’ worth checking and savings accounts
• Profit and loss statements—showing your net worth of your business
• Retirement account statements—these include recent IRAs and 401ks
• Stock/bond statements—including any investment assets

Debt documents are also good to have ready in case a lender asks for them. These may include, but are not limited to:

• Child support and alimony—including a list of monthly payments
• Monthly payments—including minimum monthly debt payments no matter who much you actually pay

And don’t forget the basics! Other essential documents  to include with the application:’

• Driver’s license or state photo ID
• Business license
• Mortgage statement
• Proof of property insurance
• Lease agreement on current property
• IRS 1099 forms

You’ll also need to include documented proof of any financial claim you make in the rental loan application. A cosigner may also help with the application process as they are liable for the loan debt so don’t take this option lightly.

Once you are working with a lender, asking these important questions will get you further and satisfy your own due diligence:

1. What are the terms?
2. What’s the funding timeline?
3. What’s the minimum down payment?
4. What are the closing costs?
5. Is there a penalty for early repayment?

Using these helpful techniques will help guarantee the smoothest application process possible.