So you want to invest in real estate. It's time to understand your financing options before choosing a lender. Here is the complete guide of the different loans available to you.
Conventional bank loans. With conventional mortgages, the typical expectation for a down payment is 20% of your property's purchase price. However, with an investment property, the lender may require a down payment of 30%. Your credit score and credit history determine whether you could get approved and what kind of interest rate you would get. In addition, the bank will calculate your debt-to-income ratio to make sure you can repay the loans.
Fix-and-flip loans. This type of loan is appropriate when you purchase a house with the intention of renovating and reselling it to generate profits. It is a short-term loan that allows the investors to renovate their houses as soon as possible so they can put the properties back on the market. Lenders must check your credit scores and net income, but they consider your property's profitability first. They will calculate an estimated after-repair value (ARV) and use this value to determine whether you are able to repay the loan. The downside of this loan type is that the interest rates can go as high as 18%, depending on the lender, and you have a shorter timeframe to pay it back.
Home Equity Loan. This long-term loan is essentially a mortgage that allows you to borrow against your equity in the residence. The amount you are allowed to borrow is based on the Combined Loan to Value ratio (CLTV) of 80% - 90% of the home's appraised value. Just like conventional mortgages, a home equity loan has a repayment term.
The interest rate is low and the housing market is looking good. It's the perfect time to invest in real estate. Click here for more information about the benefits of buying a house and get started!