In one word, the most import element in residential real estate investing is FICO.
Without a sufficient FICO score, one's grandiose thoughts of becoming a real estate investor should be put on hold, but only temporarily, at least until your credit enables you to qualify for 90 percent to 100 percent LTV non-owner occupied loans.
On average, most lenders, prime or subprime, look for FICO scores in the 580-plus range at the very minimum.
The fundamentals of successful real estate investing are built upon an above-average credit profile.
Unlike those ever-present late-night real estate infomercials that promise riches to anyone that has a heartbeat and a valid credit card, the real world of buying a home, especially as an investor, requires a higher threshold of due diligence upon oneself to maintain a good credit profile.
You don't have to have A+ credit per se, just above-average credit.
As a former mortgage operations consultant, I worked in nearly every major city with other consultants, wherein our job was to re-underwrite, audit, and price out loans, both prime and subprime, for client banks securitizing their mortgage portfolios for sale, usually to Wall Street investors.
This experience acquainted me to the do's and don'ts of submitting a loan application.
It also gave me insight into how lenders and banks think, and how they view the strengths and weaknesses of a buyer's credit profile.
Hence, here are the following items to consider before becoming an active participant in the real estate investment arena: 1.
Go online and sign up for a membership on one of those credit monitoring services.
The cost is approximately twenty-five to fifty dollars and is well worth it.
All three major repositories-TransUnion, Experian, and Equifax-have these services.
2.
Know what's on your credit report and immediately address those issues that will improve your score.
Most online credit report providers offer a score simulator, which will give hypothetical scenarios on how the pay-off or pay-down of certain debts may improve your score.
Take advantage of this "crystal ball" credit-management system, for it will provide you with a road map to recovery that will better align you with your real estate investing aspirations.
3.
Move with expediency to expunge those collection claims and judgments off your credit report.
If the amounts are small, consider paying off the balance in full since a partial payment doesn't help the FICO score as much as if the claim were paid off in full.
Although it hurts to do this-to pay off a debt or a collection that may not be legitimately yours-just consider this the cost of doing business.
Believe me, this will be a test run of looking at the "big picture" instead of sweating the small stuff and getting emotional.
Making hard decisions to assist you in the long run is strategic thinking.
Overcoming some of these credit glitches, if in fact you have any, is part of that initial process.
But paying off this debt will improve the FICO score and result in better financing terms.
Most notably, better financing terms translate into more access to capital, which means a higher LTV, which better comports to real estate flip methodology, which dictates leverage as a fundamental cornerstone of successful investing.
The latter three points are just a few of the credit related issues to be cognizant of.
Keep in mind that in the lender world, there are generally three types of loans.
These are owner occupied, non-owner occupied, and second home loans.
As an investor, you will be qualifying for non-owner occupied loans, which have a slightly higher threshold in terms of qualification.
Remember, getting an owner occupied loan at 100 percent financing is by and large not an issue.
An investor will be required to put more money into the deal at the higher threshold.
Notwithstanding that, the new and improved underwriting criteria that the lending and Wall Street worlds promulgated about ten years ago has opened up the door to millions of people in this country who couldn't buy homes before.
Thousands of investors can now buy as well under current underwriting guidelines, in connection with LTV requirements and FICO score minimums.
This is a significant advancement, since fifteen to twenty years ago, the average investor who bought a home as an investment would have to pony up 15 to 20 percent.
Hence, do your research and get the best loan that offers you the most leverage, which is a critical component of risk reduction.
Furthermore, know your credit profile, because if you don't, the lender surely will.
Hopefully they'll view you as a favorable risk.
Without a sufficient FICO score, one's grandiose thoughts of becoming a real estate investor should be put on hold, but only temporarily, at least until your credit enables you to qualify for 90 percent to 100 percent LTV non-owner occupied loans.
On average, most lenders, prime or subprime, look for FICO scores in the 580-plus range at the very minimum.
The fundamentals of successful real estate investing are built upon an above-average credit profile.
Unlike those ever-present late-night real estate infomercials that promise riches to anyone that has a heartbeat and a valid credit card, the real world of buying a home, especially as an investor, requires a higher threshold of due diligence upon oneself to maintain a good credit profile.
You don't have to have A+ credit per se, just above-average credit.
As a former mortgage operations consultant, I worked in nearly every major city with other consultants, wherein our job was to re-underwrite, audit, and price out loans, both prime and subprime, for client banks securitizing their mortgage portfolios for sale, usually to Wall Street investors.
This experience acquainted me to the do's and don'ts of submitting a loan application.
It also gave me insight into how lenders and banks think, and how they view the strengths and weaknesses of a buyer's credit profile.
Hence, here are the following items to consider before becoming an active participant in the real estate investment arena: 1.
Go online and sign up for a membership on one of those credit monitoring services.
The cost is approximately twenty-five to fifty dollars and is well worth it.
All three major repositories-TransUnion, Experian, and Equifax-have these services.
2.
Know what's on your credit report and immediately address those issues that will improve your score.
Most online credit report providers offer a score simulator, which will give hypothetical scenarios on how the pay-off or pay-down of certain debts may improve your score.
Take advantage of this "crystal ball" credit-management system, for it will provide you with a road map to recovery that will better align you with your real estate investing aspirations.
3.
Move with expediency to expunge those collection claims and judgments off your credit report.
If the amounts are small, consider paying off the balance in full since a partial payment doesn't help the FICO score as much as if the claim were paid off in full.
Although it hurts to do this-to pay off a debt or a collection that may not be legitimately yours-just consider this the cost of doing business.
Believe me, this will be a test run of looking at the "big picture" instead of sweating the small stuff and getting emotional.
Making hard decisions to assist you in the long run is strategic thinking.
Overcoming some of these credit glitches, if in fact you have any, is part of that initial process.
But paying off this debt will improve the FICO score and result in better financing terms.
Most notably, better financing terms translate into more access to capital, which means a higher LTV, which better comports to real estate flip methodology, which dictates leverage as a fundamental cornerstone of successful investing.
The latter three points are just a few of the credit related issues to be cognizant of.
Keep in mind that in the lender world, there are generally three types of loans.
These are owner occupied, non-owner occupied, and second home loans.
As an investor, you will be qualifying for non-owner occupied loans, which have a slightly higher threshold in terms of qualification.
Remember, getting an owner occupied loan at 100 percent financing is by and large not an issue.
An investor will be required to put more money into the deal at the higher threshold.
Notwithstanding that, the new and improved underwriting criteria that the lending and Wall Street worlds promulgated about ten years ago has opened up the door to millions of people in this country who couldn't buy homes before.
Thousands of investors can now buy as well under current underwriting guidelines, in connection with LTV requirements and FICO score minimums.
This is a significant advancement, since fifteen to twenty years ago, the average investor who bought a home as an investment would have to pony up 15 to 20 percent.
Hence, do your research and get the best loan that offers you the most leverage, which is a critical component of risk reduction.
Furthermore, know your credit profile, because if you don't, the lender surely will.
Hopefully they'll view you as a favorable risk.
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