Are you looking to invest in a rental property, but you don't know what your options are to get the money you need? Here are a few different types of loans that you can use to secure your financing.
A conventional loan is the type of loan that is offered for most residential homes. These loans are often over a fixed period of time and have a fixed interest rate. You are able to pay them off early or refinance and change the terms of the loan. The benefit of a conventional loan is that you will get a very cheap interest rate, and the origination cost of the loan is minimal. However, it does require a large down payment and a good credit score. You may also not be able to qualify if you have a high debt-to-income ratio.
Hard Money Loan
A hard money loan is when you work with a local company that takes chances on investors because they want to make money on the deal. These loans often have higher interest rates and higher original fees but have a few benefits that make them different from conventional loans. Hard money lenders often take chances on people with lower credit scores, since they approve loans based on the deal that is being proposed. The down payment requirement may also be lower as well.
Private Money Loan
A private money loan is between you and another person who is willing to lend it to you. This means that there is a lot of flexibility when it comes to the terms of the loan. It is not common to have an origination fee, and the interest rate can be negotiated. You also do have a credit score or down payment requirements as well. Just be aware that it can be hard to find a private money lender that is willing to work with you, especially if it is your first rental property purchase or the terms of the investment are not sound.
You also have the option to get a commercial loan, since your rental property will be used as a business. The interest rates are not going to be as low as a conventional loan, but they will be competitive. Your credit score is used as a criterion to approve your loan, but there is more flexibility since it is not a conventional loan. However, the lender ultimately makes the final decision on whether they want to approve your loan or not since they care about the deal.
For more information about rental property loans, contact a local lender.