Real estate can be an incredibly profitable investment, especially in a housing market as hot as the one we’re in now. The rental market also appears to be turning the corner, making real estate investment even more attractive. But to invest in a property, you must be able to purchase it. Securing the appropriate amount of credit is the most critical step in the real estate investing process.
Broadly speaking, there are three key ways to get a loan for a real estate investment. Review your choices mindfully so you can take the best path forward as you pursue future real estate investment opportunities.
The Three Main Real Estate Loans
Conventional Mortgage Loans
The most common type of real estate loan is the conventional mortgage. A home mortgage is determined largely by your income and your credit score. Lenders also require substantial down payments for a conventional mortgage, often at least 15% for a fixed-rate mortgage. Mortgages can take more than a month to be approved, slowing down the home-buying process.
Home Equity Loans
Another option is to borrow against your equity in an existing property. Traditional home equity loans, HELOCs, or cash-out refinancing are all options that allow you to use your existing equity to expand your real estate holdings. These loans tend to be more flexible than a traditional mortgage. A HELOC might only require interest payments, but it often comes with a variable interest rate. Cash-out refinancing is typically at a fixed rate but can extend your initial mortgage.
Hard Money Loans
A third option is a hard money loan. These loans are often shorter term and can turn around much faster than a traditional mortgage. The loan is made against the property itself and doesn’t depend on your credit score or personal income. Some hard money loans, such as fix and flip loans, are specially designed for investors who want to purchase a home, improve it, and get it back on the market quickly.
The Advantages of Investment Property Loans
Hard money loans hold a number of advantages over traditional mortgages and equity loans. One of the biggest is speed. The turnaround time with a hard money loan can as be as little as four days from application to cash-on-hand. That makes it easier for investors to grab choice properties, improve them, and get them back on the market fast. If you consider that homes sold 11 days faster in February 2021 than they did the year before, you can see why the speed of a hard money loan is attractive.
Hard money loans are also less dependent on your personal credit and income. Instead, the lender focuses on the value of the investment and the expected return. That means investors with recent credit difficulties can still move forward on a great investment opportunity. Traditional mortgages are generally closed off to investors with credit scores below 620. Traditional lenders also want proof of income. If you have a reliable source of income but have a hard time proving it to a lender, a hard money loan can be a good option.
With the focus on the property being purchased, hard money loans also leave you with the hard-earned equity in existing properties. That protects your existing investments in case something goes wrong, while also protecting the lender.
Finally, hard money loans tend to be much shorter term than other options. The term typically lasts only a year. That obviously means you need to pay hard money loans off quicker, but it also means you take on and discharge the debt faster. Interest rates on hard money loans are also fixed, which makes it easier to plan your finances over the life of the loan.
Often, buyers can refinance the cost of the hard money loan with a more traditional loan once they have purchased and renovated the property. That lets investors move with the incredible speed of the hard money loan and then switch to a longer-term, traditional mortgage once they’ve leased the property out.
How To Get a Hard Money Loan for Investment
Hard money loans are a more specialized form of borrowing, which means it’s important to find the right lender. If you have a real estate agent, he or she might have contacts with good hard money lenders in your area. You can also reach out to one of the 120 real estate investment associations around the country for references.
But even after you have found a lender, you need to make sure you have considered everything you’ll need to know heading into your loan. Make sure your lender has a good reputation and that the loan you’re being offered isn’t requiring you to jump through too many hoops. After all, the ease of use of a hard money loan is one of its major selling points. You’ll also want to make sure you’re borrowing enough money to purchase the property and make any necessary repairs or renovations.
Hard money loans can run from as little as $100,000 to up to $5 million. Speak with a contractor prior to securing the loan so you know what you should expect to pay for upgrades and repairs.
Hard money loans are ideal for upgrading an existing property to bring it to market for sale or rent. Firms like Titan Financial aim for a loan-to-value ratio of less than 60%. To get that value, divide the size of the loan you’re looking for by the current appraised price of the property. Titan Financial will also automatically convert your hard money loan into a longer-term loan once you’ve made your upgrades and moved the property onto the market.
Find Investment Property Loans at Titan Funding
Even if you aren’t interested in investing directly in real estate, hard money lending can offer good returns on the financing side. Firms like Titan Funding review all loan requests using data analysis, underwriting, and personal evaluations to vet each loan. This gives investors a way to see great returns, including monthly interest payments, while avoiding the volatility of the stock market. Get started today.