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Ways of real estate financing


paperfree Aditi Bansal

Updated on Thursday, April 27, 2017

An investor should look for creative ways to grow their business by considering various financing options that suit their specific needs and credit records. Speaking to a financial advisor also helps in choosing the best financing option.

tags  #Financing for real estate  #Hard Money Loans #

 

Real estate investors usually have many decisions to make when it comes to the acquisition and selling of property. Choosing an ideal method of financing remains critical to the success of your business. An investor does not need to have a lot of money at hand, but they should acquire in-depth knowledge on different financing options available. Below are some of the ways for financing real estate investments:

Hard Money Loans

Small private companies give hard money loans based on the value of the property that they use as collateral, rather than on the borrower’s credit history. The interest rates vary between 8-15% while their term lengths go between 6 to 36 months for short-term, and five or more years for longer terms. The loan processing may take a few days to one week at maximum.

All Cash

The investors use 100% of their income to finance a real estate investment without borrowing. The investor may use different methods to pay the cash including writing a check or wire transfer from the bank.

Conventional Mortgage

The homebuyer’s loan originates from credit unions, banks, and mortgage brokers, and comes with low-interest rates. Most of the loans require a borrower to pay a 20% minimum down payment.

Portfolio Lenders

Portfolio lenders use their funds entirely to support the real estate investment. The portfolio lenders provide flexible loan terms and less restrictive qualifications.

FHA Loans

The United States government runs the Federal Housing Administration program with the aim of ensuring bank mortgages. The government limits the loans to the residential buyers, but an investor can get up to 4 separate units with the goal of living in one unit while using the others as investments.

203K Loans

The loan is similar to an FHA loan with the only difference being that the 203K one allows the homeowner to buy a house that requires renovations. The loan finances the home repairs and improvements.

Owner Financing

The owner of the property funds its acquisitions and then the investor will make monthly payments to the seller. The seller, however, should not have any existing mortgage on the property.

Private Money

This one is similar to the hard money with the only difference being that the lender is an individual looking to have higher returns on their money. It has fewer fees and points and the terms are negotiated by both parties.

Home Equity Loans and Lines of Credit

Investors use the equity of their primary home to finance the acquisition of an investment property. The investors get a percentage of their home's total value, but the rate varies between lenders.

Partnerships

An equity partner is ideal if you want to finance an investment but the price range is higher than your budget. The partners make prior plans on the key decision-maker and split the profits and financing options.

Commercial Loans

A commercial loan is ideal for anyone looking to buy a property other than a residential property. The loan has higher interest rates and fees, shorter loan terms and different standards for qualification.

EIULS, Life Insurance, ROTH IRAs, and Other Sources

These are numerous other investment products that you can sample with the help of your financial advisor to finance your real estate investment.



This page with a focus on Financing for real estate, Hard Money Loans was shared by Aditi Bansal.

 
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