3 Real Estate Investment Loan Methods
How much of a down payment you need for a real estate investment loan depends upon the lender or the method used to obtain one. If you are a homebuyer who plans on living in the home, the more money you can put down the better. However, for an investor, that money is often better used for renovations.
There are primarily 3 avenues to get money for a real estate investment: a traditional lender, a hard-money lender or through a partnership of some form or another. Some would say there are others, but as Shakespeare wrote in Romeo and Juliet, “A rose by any other name would smell as sweet.”
Using a traditional Lender for a Real Estate Investment Loan
Large banks and credit unions are the most difficult of the three methods. These lenders usually require a minimum down payment of 20 percent, and their qualification requirements are the most stringent. A may take a high credit score, 650 or above, to qualify. In addition, there will be several application forms and other documents to fill out, and a waiting period to get approval. Although the interest rate is low, traditional mortgages are long-term and may require the borrower to live in the home, or there may be a limit on how many mortgages one investor can hold.
For many investors, this is too difficult or restrictive. Plus, by the time you secure approval, someone else has swooped in with cash and bought the property. You can avoid this if you reserved the property with a deposit, but what if your application is disapproved?
Hard-Money Lender for a Real Estate Investment Loan
The hard-money lender usually has less stringent qualification requirements. And, although their interest rates are often higher than traditional lenders, the terms are usually 6-12 months, which can fit quite well into an investor’s timeline for restoring and reselling.
Another benefit of choosing a hard money lender for a real estate investment loan is they can usually lend up to 100 percent of the after-repair value (ARV), whereas most traditional lenders only provide 60-80 percent of the loan-to-value (LTV) amount, which could mean you have less money available for the necessary upgrades.
There are often unforeseen expenses with refurbishing an old home, such as lead paint, mold, asbestos, termites, galvanized pipes that have reached the replacement point, or heat and air replacement. Therefore, having that extra 20-40 percent could save you from taking out another loan to complete the modernizations.
A Partner or Partnership
Generally, a down payment is not required in a partnership, but it could, in fact, be the most expensive option. A partner might only put up the money and ask for 50 percent or more of the profit, while you do all the work. However, if the property is that good a deal, and you don’t qualify for a traditional loan or cannot find a hard-money lender, you may not have a choice. If the latter is the problem, investigate a real estate investment loan from Red Door Funding.
Why Choose a Real Estate Investment LoanWith Red Door Funding?
Call Red Door Funding at(832) 539-1099 to find out how quick it can be to get a real estate investment loan. Red Door Funding can provide you with the money you need to buy the property and make the repairs for resale. In the Houston area, when you need money for a real estate investment, ask the professional money lenders at Red Door Funding. You can complete a credit application here. Email dwilliams@reddoorfunding.comanswers to your questions, today.