Plenty of cash reserves
Banks use the term "cash reserves" to refer to the money you have left over in the bank after making your down payment and paying your share of the closing costs. They typically express this as the number of mortgage payments you'd be able to make with your leftover funds.
Fannie Mae typically requires six months worth of cash reserves from investors. However, that number can go up to a year, depending on the strength of your lending profile. To get a better idea of how much you need to save, once you've determined your price range, ask your lender to work up an estimated monthly payment for you. You can base your rental income estimates off these numbers as well.
Solid work history
Lastly, everyone who buys a home needs to be able to prove that they have a solid work history, and investors are no exception. Here, you'll need to show two years of W-2s to prove that you've been working at the same job -- or at least in the same industry -- for a while. If you're self-employed, you'll need to provide two years of tax returns instead.
Your lender will also use your W-2s or tax returns to estimate your income. In this case, they will take the average of your income over the last two years. For example, if you made $50,000 one year and $100,000 the next, your average annual income would be $75,000.
Tips to make the qualifying process easier
Find a lender and real estate agent with investment experience
The best thing you can do when you're looking to buy an investment property is to put together a team of qualified professionals. Especially if you're planning on buying more than one rental property, you should focus on finding a lender with investment experience. They'll be able to better help you navigate the specifics of the financing process.
In addition, you'll also want to work with an agent who specializes in rental properties. Not only will you get the benefit of their experience, but they may also offer property management services, which could come in handy once you find the right investment piece.
Prepare your financials before you start house hunting
Since your financial package is such a big part of investing, it's in your best interest to make sure all your paperwork is in order before you start house hunting. Take the time to sit down with a lender to discuss the specifics of your financial situation once you think you're ready to hit the market.
If everything looks good, he or she will provide you with a pre-approval and you'll have a better idea of your price range. On the other hand, if your financials need a bit more work, your lender will be able to provide guidance on what you need to do to be approved.
The bottom line
While qualifying for a mortgage on an investment property is a bit different than doing the same for your primary residence, knowing what to expect before you begin the process can be helpful. Talk to a qualified lender, and use the information above to help you prepare when you're ready to take the plunge.