If you’re borrowing money to buy and fix up a home, you’re going to pay higher rates than you would if you bought a home ready to move into.
Does this mean you have to pay excessive rates?
It doesn’t. At Save Financial, we want our borrowers to understand how to get the best interest rates possible on rehab loans. Here’s how.
1. Make a Large Down Payment
Rehab loans require slightly higher down payments than other loans. Because you’re borrowing not only the cost to buy the home, but renovate it too, lenders take a higher risk. By investing your own money into the home, though, you show that you’re a serious borrower and want to make the transaction work.
Aim for a down payment of 10 – 30% to keep your interest rates as low as possible. In other words, however much the minimum down payment requirement is for the loan, try to put down an even larger down payment.
2. Keep your Debts Down
Your debt-to-income ratio compares your total monthly debts to your monthly income. The less money you have committed to your debts each month, the more mortgage payment you can afford.
Keeping your DTI down helps lenders give you a lower interest rate because you are a lower risk to them. Try paying credit card debt off or waiting until large loans are paid down or off completely before applying.
3. Have Great Credit
A great credit score can take you far. While you don’t need perfect credit to qualify for a rehab loan, the better your score is the better rates you’ll get.
Aim for a credit score of 680 or higher, with scores of 700+ getting the best rates. A good credit score shows that you are financially responsible and don’t default on your loans. If you don’t have great credit right now, take steps to fix it as your credit score changes monthly.
4. Have Stable Income
If you have a stable income over the last couple of years, it can help lenders give you a better interest rate too. Stable income means you are reliable and consistent. You don’t have to be a salaried employee either to have a stable income. As long as you can prove regular income and that you can afford the loan, you’ll increase your chances of securing better rates.
Not all lenders offer the same interest rates. The best way to find the lowest rate is to work with a reputable mortgage broker that works with many lenders. At Save Financial, we work with a great network of lenders that offer the best rates and terms.
Our professionals will work with you to help you get the most affordable rehab loan for your home purchase or refinance. Whether you’re using the home as your primary residence or an investment, we have your back. Contact us today to see how we can help you!