If you are dealing with real estate, you must know by now that there’s a massive difference between checking a deal out and sealing the deal. Money is one of the biggest issues that real estate investors experience when they are investing in a new property. And even though there are many funding options to choose from, ending up with the right option can indeed be quite complex. So, to solve this issue, here is a complete insight on the different funding for your real estate investment deals.
Cash is one of the simplest and easiest funding options ever. This is particularly because it has faster closing times and a considerably lower cost for holding. Sellers mostly carry out their investments as they find it simpler and risk free. However, one of the major issues of cash will be the fact that it offers less leverage. Additionally, gathering bulk cash all at once is not simple either.
This is another widely sought out option, mostly because it is incredibly convenient and also as it does not require large credit amounts. In certain cases, you will not need any credit at all to get hard money. The con of using this option would be the stringent repayment options and the expensive rates of the hard money loans.
Private Money Lender
Most real estate businessmen choose this option as it does not require any specific credit score and because it gives complete access to bulk cash. Additionally, it also comes with flexible payment terms. The only difficulty with private money lenders is the fact that they are not available widely.
In this option, both the owner and buyer can tailor the terms of the loan to fit their individual needs. There are no origination fees or loan points and no minimum down payment amount is required for this financing. The only con of this option is the high rates of interests.
This is an excellent option as having another person in the process of investment will actually double your resources. You not only get to expand the opportunities of financing, but also get to split the risk. The con here would be, trusting the other person. Partnership business can only thrive when the person you choose is completely trustworthy.
Federal Housing Administration Loans
The FHA loans are widely popular as their requirement for the credit score and down payment is incredibly lower compared to the conventional loans. Additionally, the closing costs too are higher than the regular loans. The con here would be the mortgage insurance that have been put into place for protecting the respective lender. Moreover, being managed by the HUD, it is also decided by the HUD that which exactly are the properties that can be bought with these loans.
FHA Loans- 203k
A type of FHA loans, the 203k loan is widely used by real estate investors as it can be availed at a minimal down payment option of 3.5%. This loan also gives you a chance to borrow above the value of the current sale price. Again, this disadvantage of the loan would be the fact that you have to pay mortgage insurance for about eleven years. Additionally, all properties don’t qualify for this loan either.
This loan is viable as it has a prefixed interest rate. Also, if you manage to pay about 20% of the down payment for the loan, you won’t have to pay the insurance for mortgage. However, you will need to have an excellent credit score to qualify for this loan and the overall cost of the loan is pretty high.
This loan lets you get a complete ownership of your business. The loans are also pretty long term ranging between three to ten years. This gives you ample time to pay the loan back. The process of applying for this loan is quite complex, as, you will have to divulge the details of your personal finances and also provide a detailed financial report of your business, to the potential lender.
This is one of the simplest and easiest loans. You do not have to fill in lengthy application forms, and the repayment terms are also incredibly flexible. However, if you suddenly leave or are fired from your job, you will have to get the entire loan repaid within sixty days. If not, you will have to deal with the penalties.
Home Equity Loans
These loans are used by most investors as they are easy to procure, have absolutely no tax deductions, and come with considerably lower interest rates. The con here would be the fact that they increase your debt and with changing interest rates, it becomes exceedingly difficult to control the complete cost of the loan. On a final note: Now that you are educated about the different loan funding options, choose wisely for more profits and better gains in both short and long run.