Many people dream of real estate investment, but most of these individuals never make a move because they can’t get a mortgage. We all know that real estate is a risky business, which is why banks are reluctant to finance properties that they don’t already own. However, there is a way to finance an investment property without bank financing by utilizing private lenders.
Federal Housing Administration (FHA) Loans
The FHA program was developed to help middle-class families purchase out-of-reach homes previously. The FHA loan is an excellent option for first-time homebuyers and allows you to avoid private mortgage insurance premiums. Following the 2008 housing market crisis, the FHA loan requirements have become stricter or relaxed based on market conditions.
Got a low credit score? Then the FHA might be your best option when you shop for a mortgage lender. Since the FHA does not have a pre-payment penalty in place, you can take your payments in a different order in the case of a financial emergency.
Hard Money Lenders
Hard money loans are a fast and final solution to cash-flow problems, real estate property sales, and property improvements. They are commonly used to purchase a foreclosed property or a turnaround property. Hard money loans are a common type of real estate loan issued by private lenders rather than traditional banking institutions. They are meant to help individuals buy the property that they otherwise would not be able to afford.
Any property can qualify for a hard money loan, but the property must be completely free of liens. In addition, the terms of hard money loans will vary based on what is offered by the lender, but the most common type of these loans is a ‘hard money bridge loan.’ These short-term loans may last from six months or 12 months and can be extended if necessary.
Investment Property Loans
Investment property loans are usually offered by banks, private mortgage providers, and specialized lenders. However, the terms and rates may differ. An investment property loan is ideal for individuals that want to own property but do not have the required cash to purchase it. By borrowing money, you can afford a larger property. These loans also require less paperwork than other mortgage loans, which increases the likelihood of approval.
You can get an investment property loan, but you will need to make a sizeable down payment. If possible, get more than 20% of the overall cost of the property. Also, the lender will check your credit score, and you will need to prove that you can manage all of your finances responsibly. The interest rates for investment property loans tend to be higher than other types of loans.