What you need to know if you're applying for an investment loan - article for Canstar

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How easy is it to get an investment loan? Here’s a guide to some of the things lenders look for. If you are thinking about applying for an investment loan it can pay to be prepared and have a solid understanding of what lenders are looking for. This can potentially help you improve your chances of securing a loan.

Here are some of the things lenders may consider when assessing your loan application.

The rental income

When considering your application for an investment loan lenders do consider any rental income you will receive, however, it might not go as far as you may think.

For permanent rentals lenders generally scale the rent back to 70% to 80% of the actual rent received for a suburban house and 60% for a high rise property. This reduction is to allow for potential rental vacancies.

For non-permanent rentals, such as holiday letting and Airbnb, lenders usually look at the rental history – and they might go as far back as the past two years.

As you can see you probably won’t get the full benefit of the rental income, even though most rental vacancy rates are quite low at the time of writing. So, in most cases you will require surplus income from another source to qualify for an investment loan.

The running costs

It’s worth noting that some lenders may also consider the running costs or expenses of owning the property – such as real estate agent management fees, strata, rates, insurance and maintenance – when assessing your application.

They might estimate the amount by inspecting your rental statement or tax returns if you are refinancing an existing loan. Alternatively, they may assume a nominal figure or use an estimate you provide. There is often an allowance for the interest you may be able to claim as a tax deduction to offset some of this.