How to get approved for an property investment loan?

Securing finance for a property investment purchase involves understanding the key criteria banks and lenders consider during the approval process. Here's a concise guide to help you navigate through it.

Key criteria for approval 

1. Credit Score

A strong credit score is crucial. Lenders use this to assess your creditworthiness. Aim for a score above 700 to improve your chances.

2. Income Stability

Proof of stable and sufficient income is essential. Lenders prefer applicants with a steady employment history or consistent business income if self-employed.

3. Debt-to-Income Ratio

This ratio compares your total monthly debt payments to your gross monthly income. Lower ratios, typically below 40%, are favourable.

4. Deposit Size

A larger deposit reduces the loan-to-value ratio (LVR), making your application more attractive. Aim for at least 20% of the property’s value.

5. Property Valuation

The investment property itself will be assessed. Lenders look for properties in desirable locations with good potential for rental yield and capital growth.

The impact of rental income on loan servicing

Rental income significantly impacts loan servicing. Lenders typically consider a percentage of the expected rental income when calculating your ability to service the loan. This can boost your borrowing capacity, as it adds to your overall income. However, they may also stress-test this income to ensure it can cover repayments even if rental rates fluctuate.

By understanding and meeting these criteria, and effectively leveraging rental income, you can enhance your chances of securing a finance for an investment property.

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