If you’re just getting started with real estate investing, odds are that you don’t have enough funds on hand to buy an investment property outright. Fortunately, however, there are plenty of investment property loan options available to help you start building your portfolio. Below is a guide to the different types of investment property loans that are available to investors today. Keep reading to learn which one might be the best fit for you.
The four types of loans for investment properties
Luckily, there are plenty of different financing options available for property investors. While some investors will lean toward more creative methods like owner financing or crowdfunding, below is an overview of the more traditional loan options that are available:
Conventional bank loan
Getting a conventional loan for the property is probably the most common method used by investors. If you own your own home, chances are that you might already be familiar with these loans. A conventional mortgage is simply another term for any bank loan that conforms to the guidelines set forth by Frannie Mae and Freddie Mac and is not backed by the government.
Keep in mind that, while the process of qualifying for a conventional loan is much the same as applying for a loan on your primary residence, you should expect that the qualifying standards will be a bit more stringent this time around. Since you’ll likely be carrying an investment property mortgage in addition to a loan on your primary residence, your lender is likely going to want to feel confident that you’re financially solid enough to carry both properties.
Hard money loan
There are companies that offer loans specifically geared toward real estate investment. These are known as hard money loans, and, on the plus side, they are often easier and faster to secure than a bank loan. Typically, a hard money lender bases approval for the loan more off of the value of the investment property rather than the investor’s income or credit score.
However, it’s important to note that this type of investment loan is much better suited for investors who are planning on flipping the property rather than collecting ongoing rental income. Put simply, a hard money loan is a short-term loan. Often, the terms on these loans are around three years. Additionally, be aware that these loans usually come with a much higher mortgage rate than what a conventional lender might be able to offer.
Private money loan
Unlike a hard money lender, someone who is willing to provide an investor with a private money loan is not an industry professional. Rather, this person is just a private individual looking to make a good return on investment. You may be able to find a private lender through your personal network of family and friends or you may connect with someone who travels in the same real estate investment circles.
Typically, these loans are ideal for…