Nowadays, there are many ways to finance real estate investment properties. The choices available depend on the portfolio of the investor. Business people with significant portfolios have more options than investors that are getting started. The amount of funding provided also depends on the type and size of the project intended.
Here are a few financing strategies for investment properties.
Investment Property Mortgages
Although investment property mortgages are similar to home mortgages, their interest rates may be slightly higher. Also, whereas owner-occupied home mortgages may require as little as 10% down payment, investment property mortgages can require down payments as high as 30% of the property’s value. Investment property mortgages also give the borrower less time to pay off the loan than conventional mortgages. To qualify for an investment property mortgage, one needs to prove they have four months’ worth of taxes, insurance, and any property owner payments that will be required.
Government-backed loans are a good source of funding for investment properties because they have significantly low-interest rates. Investors with a credit score of over 580 qualify for FHA loans. Investors with credit scores of less than 580 but higher than 500 qualify for the property investment mortgage if they pay 10% of the property’s value as a down payment. Every investor who pays less than 20% down payment is also required to pay mortgage insurance financing.
Home Equity Loan
If you are short on funds and do not have the four-month cash back-up to qualify for an investment property mortgage, you can consider taking up a loan against your residential home. However, it would help if you took caution not to lose your residence because of failure to make repayments. The better idea would be to borrow around 20% of the investment property price and use it as a down payment for the investment property mortgage.
Commercial Real Estate Loans
Experienced investors with large portfolios can get commercial real estate loans with shorter repayment periods and higher interest rates to finance investment properties. Financial institutions issue these loans to real estate moguls that buy and sell houses frequently. These are non-conventional loans that only consider the returns from investors’ previous history rather than the bank lending criteria.