Why do
Credit Scores
Matter to Real Estate Investors?
Jeanette Fisher
Strong credit scores save real
estate investors money on mortgage finance costs. A
good credit score, along with the other credit and
mortgage qualifications, means that investors can
pay lower fees for financing, such as points and
interest charges. Also, good credit scores help you
avoid garbage fees associated with nonprime loans.
The Real
Reason: Return on Investment
The real money making difference for real estate
investors comes into play in the return on
investment (ROI). When you build up your credit
score over 720, you open the way to finance multiple
investment properties using other people's money.
Today, you can get investment
property financing for as little as 5% down when you
meet the qualifying credit requirements. This means
that your ROI on your cash investment for the down
payment can be significant.
For example, let's take a home I found in Bradenton,
Florida. Built in 1999, this 3 bedroom, 2 bathroom,
1600 square foot home looks like a great buy for
only $219,000. Assume that the property could be
purchased for $215,000. With strong credit, the 5%
down cash investment of $10,750 buys into the
appreciation value of $215,000. A lower credit score
would mean that you'd have to put 10%-25% down or
more, which lowers your return on investment. You
would need $21,500-$53,750 down to buy into the same
$215,000 appreciation investment. In this case, your
ROI for your cash outlay would decrease
significantly.
Of course, other factors like carrying costs affect
your investment capabilities.
The point: get your credit
score over 720 so that when you're ready to buy
investment property, you get the best return on your
money.
Get the
six mortgage requirements report and find out
how to master your credit.
Copyright © 2005 Jeanette J. Fisher. All rights
reserved
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