The Best Real Estate Financing Options
There are many ways to invest in the real estate market. Purchasing an investment property is a great way to diversify your portfolio, whether you are buying and holding land for future requirements, flipping a property, purchasing a property for your relatives, enjoying the appreciation, or creating a passive income stream by renting out the property.
There are plenty of real estate financing options available in the modern financial market.
Operating with all cash to buy properties is quite difficult for most people and investors. Some people may have cash in hand, but they still prefer not to buy properties using their cash because of added risk and less liquidity to utilize towards other projects.
Some people still like to go with the traditional real estate investment loans, but amounts required for down payments and difficult lending terms often make it unappealing or impossible for many real estate investors.
Though conventional mortgages offer all cash and low-interest security, they fail due to other limitations. Still, other real estate finance options offer benefits; here are some of them.
A portfolio loan is a mortgage that a lender issues and keeps within their range of investment holdings. A portfolio lender keeps a portfolio loan in-house rather than reselling it on the secondary market. As a result, it helps the lender set more flexible terms regarding their mortgages, often in the borrower’s favor.
As these types of loans don’t need to meet strict eligibility requirements, it becomes very easy for investors to get approved to borrow funds faster and more readily. In these types of loans, the lenders are free to set any terms they are comfortable with rather than being forced to follow the strict guidelines imposed by government standards.
This whole process is simplified making it easier to obtain portfolio loans than traditional mortgages for investors and self-employed borrowers.
Whereas in the most traditional mortgage loan scenarios, banks and credit unions underwrite and craft loans using a set of government standards.
Often there are standard requirements for the borrowers to meet certain minimum credit requirements, place minimums on down payment needs and maximum limits on loan sizes, or hold specific debt-to-income ratios.
The Federal Housing Administration backs the FHA loans under the Department of Housing and Urban Development jurisdiction.
Since the FHA insures the FHA loans, it simply means that FHA will protect the lenders against the loss if you default on your loan.
However, the Federal Housing Administration only offers programs to help people purchase properties they intend to live in.
Hard Money Loans
A hard money loan is a loan that is backed by real property. Most of the time, these loans are given by individuals or a company and not banks.
It is a short-term non-conforming loan that does not come from traditional lenders but rather individuals or private companies that accept property or an asset as collateral. Borrowers can look for hard money loans to avoid the lengthy process of getting approved for a loan through traditional models.
A hard money loan is also secured like a traditional mortgage, where the borrower guarantees the property to make the real estate purchases.
The “hard” in hard money refers to the tangible asset being used to back the loan’s value. If the person cannot repay the loans, the lender can take ownership of the property.
It is easy to secure hard money loans, and the process is often fast and typically less stringent than traditional loans.
The loan decision is primarily based on the property’s value and terms can range from 12 months to 30 years.
To learn more about the real estate financing options available to you, feel free to contact experienced investors like VP Capital.
We are a renowned leader in the industry for different kinds of real estate investments loans. In addition, we have built a reputation for building long-term relationships with our clients. So, whether you are looking to Fix & Flip a property, purchase a property for rental income, or invest in multifamily properties, VP Capital Lending offers funding options that are tailored to your needs.