Capitalism and homeownership, those two things are an integral part of the American Dream, and you’re here because you want to partake in both. Making a profit in property investment is a tantalizing prospect. However, do you have the best loan plan for your needs and situation? There are a variety of property loans with their own pros and cons, it is in your best interests to know about the types of investment property loans.
Investment property loans generally fall under three types; conventional bank loans, hard money loans, and home equity loans, for each loan type there are specific requirements that you must fulfill. Generally speaking there is no property loan that’s “one size fits all”, so it is vital you find the right loan for you, especially if you want to make a profit. It’s also important to remember that choosing the right kind of loan can make or break your investment.
What type of loan is best? Here are your options.
The first type of investment property loan, Conventional Bank Loans, follow the rules set by Freddie Mac or Fannie Mae. This type of loan is the most common option for property investors. It factors in your personal credit score and credit history, which then determines your possibility of approval as well as the interest rates to be applied. Another factor that the Conventional bank lenders would look at are your income and assets.
Cash to Fix it and Flip it
Fix-and-flip loans are the second type, it is a short term loan that allows the property investor to make renovations on the home so it can be sold quickly. Fix-and-flip loans are hard money loans, which means the loan is safeguarded by the profitability of the property itself. The advantage of using a hard money loan in property investments is that it is easier to qualify for it than a conventional loan. The property’s estimated value after the repairs is a determinant of whether you can repay the loan.
Home Equity as collateral
The third type is Home Equity loans. It is a cost-effective and convenient way to fund investment property purchases, because Home Equity is secured by real property which is a high-quality form of collateral. Home equity loan providers will provide terms that are far better than the other forms of loans. Using home equity to fund a real estate investment has its share of advantages and disadvantages, depending on the type of home equity loan you choose, for example a HELOC allows you to borrow against the equity the same way as with credit cards, while the monthly payments are frequently for interest only.
You decide what’s best
Investing in real estate, like any investment, comes with their own set of risks, but they can offer potentially big returns. As such, finding the right loan plan that meets your unique needs for any given situation is the best approach to minimizing risks and maximizing profits.
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