5 Types of Real Estate Financing to Consider for Real Estate Investing4 min read
As you get closer to the point of actually seeking financing for your first real estate investment purchase, you will need to become familiar with all of your borrowing options. There are a great many options and things like your credit score and current income are going to be a factor in which types of loans you can qualify for on your first purchase. But understanding all of your options is very important to making the best selection for your current needs and your future plans for your real estate investing.
FHA financing is one of the most cost-effective ways to purchase real estate. You will need two years of employment history, and you need to be purchasing your primary residence with the loan. But that is possible if you elect to buy a multi-unit home, such as a duplex or a triplex. You live in one unit and rent out the others. The rates are low, and you can borrow as much as 96.5% of the property value.
Traditional banks are the place to go for your first loan if you have very good credit. In most cases, smaller community banks will be the best choice for a first investment purchase. You will need a high 600’s credit score, a dependable income, and a 20% down payment to get the best interest rate possible. If you already own your own home and have some equity, a home equity line of credit is also an option for financing an investment property. A HELCO will work to provide additional funds for renovations as well when you have used other means to fund the purchase.
Seller financing is a process where the seller actually allows you to make payments to him or her for the property. There is a purchase agreement as well as all of the normal purchase documents in place, but just no traditional mortgage. In these cases, you normally make a down payment and then the transfer of the property is made. Finally, private lenders, such as hard money lenders or private individuals looking to diversify their investments are always an option. The terms of these loans can vary as the lender has the ability to write the loan agreement as he or she sees fit. In addition, these loans often have a higher interest rate but are not as difficult to qualify for.