Would you like to make extra money? Naturally, you would, but there are so many different methods that it’s hard to decide how.
If you have the time and energy, renting out a home can be a great way to bring in extra money over a long period. You also get the benefit of getting people to pay off your home for you.
If you end up going this route, you will most likely take out a loan to buy the house. There are so many different types of loans that it’s difficult choosing rental loans that may be right for you. Here are the things you should avoid when applying for loans.
1. Not Calculating the Cost of the Home
This goes beyond the price of the home you want to purchase – you need to account for other costs you may accrue. Even if the price of the home you want is in your price range, it may not be a good investment.
Consider how much money you need to put into the home. Some homes need renovations or maintenance when you buy them. As you make note of all the money you have to spend on the house, there comes a point when it isn’t worth the hassle.
If you have to spend tens of thousands of dollars to make repairs, it will be difficult to recoup the money spent. If you’re renting the home, it will be many years before you make it back.
2. You Don’t Shop Around When Choosing Rental Loans
When you look for a house to buy, you don’t choose the first one you see. The same logic applies when you consider options for loans.
Your first instinct will most likely be checking your bank or credit union for a loan. In many cases, this may be your best option but you should still look around. Check with other banks and lending institutions to see their rates for loans.
3. Not Enough Cash in Reserve
When you buy a house, there is always the possibility of unexpected costs. Even when you calculate the cost of the home, you need to have extra money for surprise expenses. Many homes people buy as investments are foreclosures or short sales.
Many of these homes have issues that need to be repaired. If you don’t have the money to take care of these repairs, you may not be able to rent out your home.
You should also have extra money to cover your planned remodeling expenses. You may run into situations where the cost of remodeling is more than what you planned. This can happen when more expensive materials are needed or for additional work.
When you take out a rental loan, set aside some of that money for those surprise costs.
4. Not Calculating How Expensive it Can Be to Live in the Home
A house you want to purchase may have a great cost, but you should consider the cost of living in and owning the home. When you rent the home, you can offset some of these costs, but it could detract potential renters.
Electricity and water bills can be expensive for homes with a lot of space. On top of that, you will have to worry about the annual property taxes that come with owning the home. There is also the cost of potential repairs to the home.
Bigger houses will almost always larger repair costs.
5. You Forget to Account for Your Credit Score
Your credit will play a huge role in determining whether you get approved for a loan. Being late on bill payments and outstanding loans will negatively impact your credit score. A low credit score may mean that you don’t get approval for your loan.
Lenders like to see that you are reliable when it comes to paying on money you owe. If you have outstanding loans, you may want to wait before you take out another loan. This will put your plans on hold, but it will increase your credit score if you pay off your loans and make the payments on time.
A higher credit score can also mean that you get more in a loan.
6. Underestimating Interest Rates on a Loan
When applying for loans, one of the most important things to consider is the interest rate. When you take out a loan for a home, the loan will be at least several hundred thousand dollars.
A difference of 0.5% does not seem like a lot. On a scale of hundreds of thousands of dollars, however, it can mean paying thousands more.
A common mistake many people make is only paying the interest accrued when they pay on loans. This causes the overall amount of money they owe to increase without making a dent in what they owe.
If you can only afford to pay back the interest owed, you should get a smaller loan.
7. Ignoring the Other Costs of a Loan
The down payment and the interest rate aren’t the only costs of getting a loan. There are also mortgage registration fees, mortgage redemption, and fire insurance premiums to take into account. Make sure to consider these costs when you plan your budget.
Your Lending Source
Renting out a home can be an excellent way to bring in more money. If this is something you want to do, there are things to consider when choosing rental loans.
You will need to consider the cost of the home, how much it will be to live there, and the extra funds it will take to fix repairs. When you look for a loan, consider your credit score, the costs of the loan, and the interest rate. You should also shop around to ensure you get the best rate possible.
At LendSimpli, we help aspiring real estate investors realize their dreams by lending them the funds necessary to get started. If you want to begin your investing enterprise, start by learning how to apply for a rental loan. Once you complete these steps, contact us and we can start setting you up with a loan.