How To Find The Right Loans For Real Estate Investing



For those who are new to the world of investing, finding a property isn’t the hardest part! For many, finding the right type of loan for their real estate investment can make or break their next deal. Real estate investors are often on the hunt for the next big deal, but finding the funding for these projects can be anything but easy.

For many lengthy loan applications, underwriting. And various loan loopholes can break any great deal. That is why knowing the best type of loan for your investment is crucial for successful investing.

Below we break down how to find the right loans for real estate investing, so you are never caught waiting for funding for your properties.

Know Your Real Estate Investment Type

Before you start looking for the right type of loan and lender for your investment, knowing what your investment is will make it much easier. For those that are looking at commercial investments a home equity loan simply won’t work for your investment.

Therefore it is crucial to have a clear understanding of the type of investments you are looking at, and how you can use them. The most common type of real estate investors are:

Flips: House flippers, fixer-uppers, the whole nine yards. Fix and flips are a great way for investors to get their feet wet and make large profits on upgrading homes. These types of investments are one of the easiest to find funding from traditional, private, and fix and flip lenders.

Rentals: from single apartments to home or even multi-family investments, rentals are an investor favorite for generating passive income and building long-term wealth. Depending on the type of rental, you may have a larger variety of loans available, but larger complexes are harder to find loans for.

Land: With no maintenance or tenants, and endless opportunities, land investments are a great way to build residual income. Land in the right areas, such as outside major cities, can be serious money makers as new companies, apartment complexes or more look to build. Home equity loans, traditional mortgages and some hard money lenders offer loans for land investments.

Commercial: Warehouses, office buildings, and even some apartment complexes are examples of Commercial real estate investments. While these investments can be high earners, finding the right loan to fund these investments can be tricky at best! Commercial investment property loans, and even hard money loans are a great option for these investments.

Once you know your type of investment, you can start weighing the pros and cons of each type of loan.

How To Use Traditional Bank Loans For Investing

If you currently own a home, then you have used this type of loan before. Traditional mortgages loans are valued by taking the borrower’s credit score, down payment, and employment history. They combine these factors to determine if the borrower can afford the next mortgage. Interest rates will vary on the borrower’s credit, and term lengths can last up to 10-30 years.

Traditional loans are used frequently by real estate investors as they offer low monthly payments and smaller interest rates than some of the other options listed below. Unlike your standard mortgage, real estate investors are expected to comfortably afford more than one mortgage (if they have a home residence, and then are buying an investment). If they have more than one mortgage, they are expected to have several months of payments for a down payment.

Most real estate investment lenders will require some form of down payment. For traditional loans, they can require up to 20% of the property’s purchase price.

Traditional Bank Loans Can Be Used For:

  1. Fix and Flips Investments
  2. Certain Rentals Investments (Rental Homes, Vacation rentals, Some Multifamily Rentals)
  3. Land Investments

How To Use Hard Money Loans For Real Estate Investing

Hard money loans are loans that differ from your standard bank loan in a lot of different ways. Hard money lenders actually do not use the borrower’s income or credit history to determine the loan. Instead, they use the property value, and the after repair value of a property (if applicable) to determine the value of your loan. Hard money lenders are fast to fund because they don’t require lengthy paperwork to approve the loan, they use the property value for the loan.

Hard money loans can approve a loan for investing in 12 hours or less, and can even fund on a property in 2 days or less. Hard money loans are created for real estate investing, so they have shorter term lengths and higher interest rates. Interest rates for hard money loans can range from 12-16% and loan length is 6 months to 2 years.

As these loans are crafted for real estate investors they can be used for a large number of investments.

Hard Money Loans Can Be Used For:

  1. Fix and Flip Investments
  2. Rentals Investments (All types)
  3. Some Land Investments
  4. Some Commercial Investments

Hard money lenders work closely with investors to offer quick funding and can be deal savers.

How To Use Home Equity Loans For Your Investments

Home Equity Loans can be used to purchase a secondary home, but they offer more risks than traditional, and hard money loans.

If you are a homeowner, you can use your home value as either a home equity loan, or cash-out refinance. You can use a Home Equity loan to secure an investment property. Depending on your home, you can borrow up to 80% of the value to secure your next investment. Rates are variable depending on the current market, your credit, and if the prime rate of your home changes.

This type of loan is not for everyone. Not only will this extend the value of your loan, but you have to weigh the potential profit of an investment carefully with this type of investment. If you default on this type of payment it could put both properties at risk.

Home Equity Loans Can Be Used For:

  1. Fix and Flip Investments
  2. Certain Rentals Investments (Rental Homes, Vacation rentals, Some Multifamily Rentals)
  3. Land Investments

How To Use Commercial Investment Property Loans

Commercial investments are a great way to generate passive income, but funding a commercial real estate property is harder than other investment types. Using Commercial Property Loans is the answer for those hard to find and harder to fund properties.

For real estate investors looking for this type of loan, a solid credit score, and business plan are a must. In order to get approved for this type of loan from private money lenders or traditional lenders, you must be able to prove cash flow. Having a down payment is also a necessity for these types of loans. Most real estate investors can expect to see a down payment of 15-35% of the property purchase price. Long rate and interest will vary.

Commercial Investment Loan Can Be Used For:

  1. Commercial Investments
  2. Large Multifamily Rentals
  3. Commercial Land Investments

Commercial investments require a clear exit strategy and cash flow. Paired with the right type of loan, you can start profiting from your investment in no time.

Summary

Not all loans are created equal, and with variations from states, terms, and rates, what works best for one investment may not be the case for others. Finding the right funding for your investment is critical to making smarter investments.

  • Know Your Real Estate Investment Type: If you are flipping you will find a wide variety of loans for your investment, but for land you will have to search for the right lender. Know what your investment is before looking for lenders to help you find the right terms for your property.
  • How To Use Traditional Bank Loans For Investing: For flips, land , and some rentals a traditional mortgage will offer you the lowest rates and longest terms. Traditional loans will take longer to fund, and are based on your credit.
  • How To Use Hard Money Loans For Real Estate Investing: Fast loans made just for real estate investors. Hard money loans offer flexible terms, rates and base their value off the property not your credit. These are great for flips, rentals, land, and some commercial investments.
  • How To Use Home Equity Loans For Your Investments: Some use a home equity loan to purchase a flip, rental or even land. Although this is a risky strategy it does offer flexibility for investors to find and purchase properties on their timeline.
  • How To Use Commercial Investment Property Loans: Warehouses, apartment complexes or even office buildings are commercial investments that can benefit from these loans. While these can be offered from traditional banks, or private money lenders, having a solid business plan, good credit score and down payment can help you secure this type of loan.

What type of loan have you used for your investments?

Eric Jeanette About Eric Jeanette

About the author – Eric Jeanette started as a Realtor in 1993 and eventually transitioned to lending. His companies Dream Home Financing and FHA Lenders provide mortgage information and education to consumers. They also provide those same consumers with a free lender match service through a network of lenders for conventional, FHA/government, subprime, self-employed and many other niche loan programs.