You've found the perfect investment property, but your bank account isn't quite as excited as you are. Don't let that dampen your entrepreneurial spirit. In today's dynamic real estate market, savvy investors have a toolbox full of financing options at their disposal.
And, we've got the 411. Let's go through what you need to know about real estate financing.
Mortgaging Options
Mortgages are the most common option when you're financing a property. These include:
- Conventional loans
- FHA loans
- VA loans
- Portfolio loans
Conventional mortgages are the go-to option for many real estate investors. These loans are not backed by any government entity, which means they typically have stricter requirements regarding credit scores and down payments.
FHA loans are particularly attractive for investors who may not have a large amount of capital. FHA loans are typically used by investors who are looking to purchase multi-family properties and live in one of the units.
For veterans, service members, and their families, VA loans provide a powerful mortgaging option with significant benefits. VA loans don't require a down payment and offer competitive interest rates.
Unlike conventional loans, portfolio loans are kept on the lender's books rather than being sold off, giving lenders more flexibility in their terms.
Real Estate Loans
You can also look into non-mortgage loans. Bridge loans are short-term financing options used by investors who need to close quickly on a property or finance a renovation before securing long-term financing.
These loans are ideal for investors who are purchasing properties at auctions, in foreclosure, or in need of significant repairs.
Hard money loans are secured by the property itself and are provided by private lenders rather than traditional banks. They can be obtained quickly, with less emphasis on the borrower's creditworthiness and more on the value of the property being used as collateral.
Some types of investments have government loans available. For example, USDA loans are available for rural property investments, providing favorable terms for investors looking to purchase agricultural or residential properties in rural areas.
Choosing Property Financing Options
The first step in choosing property financing strategies is to clearly define your investment goals. Are you looking to create regular rental income, flip properties for a quick profit, or build long-term equity?
Your financial situation is important for determining which financing options are available to you. The following will influence the types of loans you can qualify for and the terms you'll receive:
- Your credit score
- Available cash for a down payment
- Existing debt
- Overall financial health
Think about your risk tolerance. Investors who have a low tolerance might lean towards fixed-rate loans, which offer stability and predictability.
Those with a higher appetite for risk might opt for more aggressive financing strategies, such as ARMs or leveraging multiple properties. It's also important to consider market conditions.
Real Estate Financing: Now You Know
Clearly, there's a lot to keep in mind when it comes to real estate financing. With this guide, you should be able to get your financing in place for when you need it.
Do you need help taking care of your new Troy investment property? PMI Oakridge Management is part of a global franchise that's been dedicated to providing top-quality customer service for over 20 years.
Contact us today.
