There are several approaches to financing real estate investments. The importance of this part of the investing process cannot be overstated. In fact, picking the ideal financing option can help real estate investors avoid unnecessary expenditure and increase their chances of generating a high return on investment. So what are the best real estate investment loans available in the US housing market 2020? This article will provide you with an in-depth answer to this question and help you pick the ideal loan for investment property.
The Best Real Estate Investment Loans in 2020
When you are trying to get a loan to invest in real estate, it is essential that you explore all the options that are available to you. This is the only way to ensure you are opting for the ideal financing method. Here are some of the real estate investment loans that you should consider.
Related: 6 Investment Loans for Beginners in Real Estate
1- Conventional loans
As always, your first option as a real estate investor is conventional financing. A conventional mortgage for rental property is a loan that conforms to Freddie Mac and Fannie Mae regulations. In other words, the parameters of the loan are already set and every lender abides by the same rules. Generally speaking, you are expected to put down 20% of the income property’s purchase price and obtaining the loan is subject to meeting certain credit criteria. Below is a brief look at the main requirements for conventional loans.
- The minimum credit score for most lenders is 620.
- The maximum debt to income ratio is 45%.
- Some lenders might require high cash reserves.
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2- Private lending
Private real estate investment loans are a perfect option for real estate investors. Working with entities outside the confines of large financial institutions allows you to negotiate favorable terms and offers you the chance to secure good investment property mortgage rates. Each private lender has its own set of requirements but they are generally more flexible than banks when it comes to issuing an investment property loan. Here are some of the benefits of working with a private lender.
- The loan terms are more flexible.
- Interest rates might be lower than what conventional lenders are offering.
- The credit score of the borrower is not a consequential criterion for private loans.
- These loans boast fast closing times compared to other financing options.
Private financing has grown in popularity over the past few years. As a result, finding a private lender who is willing to work with you is a fairly simple process. Some of the avenues you should explore include talking to local real estate brokers and sifting through public records.
Related: The Guide to Using Private Money Lenders for Real Estate
3- Hard money lending
Hard money lending is another option that you should consider when you are looking for the best real estate investment loans. In simple terms, this is a very short term investment loan that you can get from a lender who is willing to finance a sizable real estate deal. Consequently, this financing method comes with high interest rates and might require providing significant guarantees to the lender. On the flip side, hard money lending can be a convenient way to secure a loan for a time-constrained investment. Property flipping and house wholesaling are prime examples of strategies that allow you to leverage hard money lending to the fullest extent.
Related: Where Can You Find the Best Hard Money Lenders for Rental Properties?
4- Bridge loans
A bridge loan is one of the investment property financing methods that enable you to leverage your existing equity in other properties. The money you get can be used as a down payment on investment property or to finance rental properties of different types. Bridge loans can be obtained from most major financial institutions and are issued in the form of a single loan that covers multiple properties. As for the benefits of these real estate investment loans, the main advantage is the highly negotiable terms. In fact, the more collateral you put up, the better the terms will be.
It is important to keep in mind that finalizing these loans can be quite complex. This is especially the case if you are a beginner real estate investor. Understanding prepayment penalties and individual releases are particularly crucial when applying for a mortgage loan for investment property. To ensure everything goes smoothly, retain the services of a financial adviser.
5- Fix & flip loans
If your main real estate investment strategy is to fix-and-flip properties, then you will be glad to know that there are loans that are specifically designed to accommodate you. These real estate investment loans prioritize the earning potential of the property rather than borrower credit. The quick processing times of these loans allow you to undertake complete renovations in a timely manner and put the property on the market immediately thereafter. While hard money lenders are the most prominent issuers of fix & flip loans, you can also secure such financing through a wide range of crowdfunding platforms.
6- Mini-perm loans
Mini-perm loans have emerged as a practical alternative to conventional modes of financing. Designed originally as bridge loans for commercial properties, savvy real estate investors have managed to leverage them for a wide array of investments. When issuing mini-perm loans, lenders are typically looking for a high-potential investment as well as extensive property management experience. As it is the case with most non-conventional real estate investment loans, the terms are very negotiable. However, a typical mini-perm loan runs for 3 to 5 years and involves a balloon payment near the end of the term.
The Bottom Line
Figuring out which are the best real estate investment loans is fairly easy once you become familiar with the main features of each financing method. However, picking the right option is ultimately dependent upon your investment strategy and credit health. In the meantime, use the Property Finder to check out thousands of potential profitable real estate investments.