Steps for Applying for a Rental Loan

Real estate investors who are looking to purchase properties and become landlords may consider financing options to cover the costs. One of which is applying for a rental loan from a private lender or hard money lender. However, for investors unsure what the application process is or what documents and information they’ll need to provide, here is a brief overview to get you more organized so you’ll be all set and ready to apply for that rental loan.

Take a Financial Snapshot

When applying for a rental loan, you’ll need to know where you stand before you show that information to a lender.

Take a hard look at income, debts, assets, and cash flow. Make sure to account for concerns like cash reserves and emergencies.

Compare your snapshot to the price of the rental property, estimated payments, property taxes, fees, and down payment amount.

Gather Your Documents

Once you deeply understand how much rental loan you can afford, gather written proof to back up your position. Every lender is different and will require their own documentation or information when determining approval for financing but here are some general documents lenders may request from a borrower applying for a rental loan.

Income Documents

  • W-2s. Wage earners will need to furnish two years of W-2 forms when applying for any rental loan.
  • Pay stubs. Provide copies of the two most recent.
  • Federal Tax Returns. Show two years of tax returns to back up any income from other sources. This includes social security, child support, alimony, and commissions. If an income source doesn’t show up in your tax returns, lenders may not accept it.
  • Spouse income. Lenders may take a spouse’s income into account for rental loan purposes. Spouse income documents are the same as those listed above.
  • Cosigner. This isn’t a form of income but a way to strengthen your application. Since cosigners are liable for the loan debt, this isn’t a step to take lightly.

Asset Documents

  • Bank statements. When applying for a rental loan, you’ll need the most recent two months of statements from checking and savings accounts.
  • Profit and loss statements. These show the net worth of your business.
  • Retirement account statements. Include recent statements from IRAs, 401ks and other retirement accounts.
  • Stock/bond statements. You’ll need documentation of any investment assets so be sure to include these when applying for a rental loan.

Debt Documents

  • Child support and alimony. You’ll need to list monthly alimony and/or child support payments as debts for loan and mortgage purposes.
  • Monthly payments. You only need to provide the amount of any minimum monthly debt payments, no matter how much you actually pay.

Other Documents

Not all the documents below apply for every borrower or for every real estate rental loan. Generally, the actual documents list will come from the lender. You’ll need documented proof of any financial claim you make in the rental loan application.

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

Questions for the Lender

In applying for a rental loan, you may focus on proving your finances and neglect your own needs. Ask the questions below to satisfy your own due diligence.

  • What are the terms? The terms of a real estate rental loan include interest rate, Loan to Value (LTV) and points. A $75,000 loan on a $100,000 rental has a 75% LTV. It may have a 3.6% interest rate. The lender may also charge 2 discount points, which means an extra $1,500 ($75,000 x 2%).
  • What’s the funding timeline? This is the time it takes for a lender to process a rental loan’s documentation and deliver financing.
  • What’s the minimum down payment? A smaller down payment on a rental loan typically means a higher interest rate.
  • What are the closing costs? How much are the closing fees connected to the loan?
  • Is there a penalty for early repayment? Find out whether the lender charges extra for prepayment. If so, ask about renegotiating the penalty to a lower number.

Time to Apply for a Rental Loan

LendingOne makes applying for a rental loan faster and easier thanks to our user-friendly online application, streamlined process, and dedicated customer service to help you every step of the way. Investors can choose from a 30-Year Fixed-Rate Rental Loan, 5/1, 7/1, or 10/1 ARMs for either the purchase of new rental properties or to refinance currently-owned ones. Apply now and get your instant rate quote today!

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