If you’re interested in becoming a real estate investor, you need to be very familiar with the different types of financing available to you. When it comes to investing in properties, financing is everything. How you obtain real estate financing can have a major impact on every other aspect of each deal that you close. It can take some time to become familiar with the different types of real estate financing but it’s well worth it in the long run.
There are many different types of financing available to you but it’s helpful to focus on the most common types until you are very familiar with them. Whether you are brand new to real estate investing or an experienced professional, you need to know these financing types like the back of your hand.
Here are some of the most common real estate financing options available to you.
Loans that are intended specifically for purchasing certain types of real estate properties are known as hard money loans. These loans are very common and you shouldn’t have much trouble locating a hard money lender. However, these loans are only disbursed under very strict conditions.
These loans are attractive because they allow investors to close on deals very quickly. You may not have to meet any income requirements, which can speed things along, but you’ll need to put up some collateral. Also, hard money lenders usually only want to give out loans for properties that are very likely to appreciate in value over time. These loans are ideal for house flippers who want to close deals quickly.
These loans don’t necessarily have to come from a family member or a close friend; they can come from any private citizen who wants to get into real estate investing. However, friends and family members are common sources of these loans. They’re attractive for you as an investor because you typically won’t have to worry about credit checks, background checks or proving your income stream. This is because you can often use your existing relationship with a private investor to secure their loan.
These are similar to hard loans because you can get the investment funds quickly and close deals in a hurry. However, you’ll still need to convince a private investor that they will get a great return on their investment. This isn’t always easy but it’s much simpler if you find a great property that you can sell quickly.
Standard loans, or conventional loans, are one of the most common sources of real estate financing. Commercial lenders, such as banks and financial institutions, disburse these loans. This means that an experienced lender backs them up but it also means that you’ll have to clear a thorough set of checks in order to secure a loan.
You’ll typically have to put up a 20% down payment, pass a credit check and satisfy any other requirements that the lender has in place. If you’re interested in buying rental properties or properties you intend to keep for a while, these loans are a great choice if you meet the requirements.
The federal government backs FHA loans and they are intended for low-income homebuyers. If you can show that you meet the income requirements, you may be able to secure an FHA loan for a 3.5% down payment. This is great if you’re just getting started in real estate investments and you want to keep your monthly payments down as much as possible. FHA loans are not available for everyone but you should find out if you meet the requirements to get the low monthly payments that they offer.
Get as familiar with the financing options available to you to keep you in the real estate investment market for a long time.