When people think of home loans, they often think only of the conventional type: a thirty-year loan at a fixed or variable interest rate. Yet if you plan to purchase a property purely as an investment rather than a residence, a conventional loan is hardly the best fit. For these kinds of situations, an investment property loan is usually preferable. With that said, because investment property loans occupy a niche part of the real estate financing market, many potential investors usually have lots of unanswered questions before they apply. Keep reading below for just three of the things you should know before you begin your application.
Private Lenders are More Common
Many banks do offer investment property loans, but like other loan programs, the process of obtaining one is usually too slow for the likes of most investors. As such, it's often better to focus your search for a loan on private lenders (often referred to as "hard money" lenders) who specialize in fix and flip loans. These are short-term loans designed for investors and can offer the most value when all is said and done.
Larger Down Payments Are the Norm
Another thing to bear in mind before you apply for an investment property loan is that they often feature higher down payment requirements than conventional loans. If you plan to remodel a house within a matter of weeks, then you will likely have sufficient cash flow to pay off the remainder of the loan without any problems, but it is a factor worth considering nonetheless. If you are new to real estate investing and don't have cash flow from another property to pull from, you will want to be sure that you have enough capital for a larger down payment.
Potential Is Everything
While it's true that your income, credit score, and financial history are all important to lenders, what matters most to hard money lenders in particular is potential. It is important to show exactly what renovations you plan to perform, how they will be accomplished within a realistic time frame, and how they will ultimately add value to the property in a way that makes it appealing to buyers. In fact, the amount of many short-term fix and flip loans is determined by the ARV, or "after repair value" of the property. Don't cut corners when it comes to illustrating how much potential your project has.
To learn more about investment property loans, contact a loan and financing service in your area.
Share17 November 2022
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