If you’re just getting started with real estate investing, you probably don’t have enough cash in your bank to buy an investment property on your own. Many investment property loans like Installment Loan – Oak Park Financial are available to assist you to start developing your portfolio. The following is a list of the many types of investment property loans available today. Continue reading to find out which one is best for you.
The 4 types of loans available for investment properties
There is a wide range of funding options for real estate investors. While some investors may prefer more innovative ways of financing, such as the owner-financed loan or crowdfunding in real estate here is a brief overview of the more conventional loan options that are offered:
- Conventional bank loans
The most common approach used by investors is to take up a traditional loan for the property. If you own a home, you’re probably already familiar with the concept of loans. Any loan from a bank that fulfills the requirements specified by Frannie Mae and Freddie Mac and is not insured by the federal government is referred to as a “conventional” mortgage.
Even though applying for a conventional loan is comparable to applying for a loan for your primary house, you should be aware that the qualifying standards are a little more stringent this time. Because you’ll most likely have a mortgage for an investment property in addition to your primary dwelling, the lender will want to make sure you’re financially secure enough to maintain both.
- Hard money loan
There are several businesses that specialize in providing loans for real estate investing. These are sometimes known as “hard money” loans, and they’re typically far easier and safer to get than bank loans. In general, a hard money lender would grant a loan based on the asset’s value rather than the borrower’s income or credit score.
It’s vital to keep in mind that this type of investment loan is better suited to investors who want to sell the property rather than rent it out. A cash loan may be characterized as a short-term loan in basic words. The loans are usually for a period of three years. Also bear in mind that these loans usually come with a higher mortgage rate than a traditional lender would be prepared to provide.
- Private money loan
In contrast to a hard money lender, a person who offers a personal loan to investors is not a specialist in their area. This is a person who is aiming to make a reasonable profit on their investment. You could be able to find an individual lender among your friends and relatives, or you can meet someone who is in the same circles as you in terms of real estate investing.
They are usually a good choice for folks who are unable to obtain a bank loan. The prerequisites for these loans can be relatively flexible, and the interest rate is likely to be beneficial, thanks to the existing ties between lenders and borrowers. However, because they are generally backed by a promissory note, if you do not pay the mortgage, the lender may be able to seize possession of the property.
- Home equity loan
If you own a house, you may be able to get funding for investment properties by taking out a home equity loan. A house equity loan, as the name indicates, allows you to borrow against whatever equity you’ve built up in your home. In the vast majority of circumstances, homeowners can borrow up to 80% of the value of their property.
The majority of the time, all you need to get a mortgage equity line of credit is documentation of the assessed worth of your property, as well as verification of your family’s income and credit score. Aside from the streamlined process, another advantage of this sort of mortgage loan is that the rate of interest you receive will be competitive. The disadvantage is that if you don’t make payments, the lender may be forced to repossess the home you used to reside in.