Strong credit saves 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.
However, 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.
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