1. Maintain a credit score of at least 670
Be sure to use credit monitoring software such as FreeCreditReport.com to keep tabs on your credit score. For example, fraudulent activity can be devastating to your score, and if it not identified early, it can be tough to remove. Creditors are usually willing to work with you if there are viable explanations for missed payments, although it is best to remain diligent when it comes to making 100% on time payments.
2. Make sure you shop around for the best rates
Each bank has different underwriting standards and financial products, which it why it is important to work with several groups before making the final decision.
3. Underwriting standards have gotten tighter, so make sure your proforma is conservative
The days of highly optimistic underwriting have come to an end, so it is important to be highly conservative when developing your proforma, which will ensure a clear meeting of the minds with your debt partner.
4. Have at least 9 months liquidity for debt service payments
Veteran investors have gained enough experience to be cautious with any deal, although newbies often make the mistake of going into an acquisition without being adequately capitalized. Anything can happen – having at least 9 months of debt service payments will provide the cushion needed if and when you’re confronted with the unexpected.
5. Find the debt structure with interest only payments if possible
Having an interest-only mortgage, whether full-term I/O or partial can be the difference between a successful acquisition and a flop. Of course, the full-term I/O option would provide the optimal cashflow for your asset, but even a partial I/O period adds to the cashflow as you renovate or reposition the asset.