Have you ever considered real estate investment as a measure to generate capital gains or rental income? An investment property promises good appreciation in the coming years and a lot of people are applying with banks, mortgage money lenders, etc., in order to finance their investments. Loans are the most common forms of investment property financing. There might be cases when one is able to borrow from family and friends, but more often that not banks and private money lending agencies are the institutions one looks forward to while thinking about financing a property. There might be some real estate investors who have got enough funds to buy the property outright, but a majority of prospective investors look for the various sources of financing.
Investment Property Financing : A Few Guidelines
While you may be all excited about owning properties and increasing your monthly income, there are certain strategies that you should know before obtaining an investment loan. Some of these strategies are
- Knowing the purpose are you borrowing the money for. While talking to your lender make sure that you reveal the true motive behind the financing. If it is a second home or you want to put it up on rent, let the lender know about it.
- While calculating the mortgage payments, the plan of action for most people is that they pay off the monthly installments through the rent they receive. While this is good business planning, things can go wrong if you are not able to find a tenant. So, ensure that you are in a position to pay regularly from your funds so that things like foreclosure, bad credit rating etc., can be kept at bay.
- The sub-prime crisis has made the financing of the down payment a bit difficult, however if you have a good credit score or can put up a collateral, then the down payment would not be that big a concern. You can also use the equity in the house for making a down payment.
- A small chink in the armor can make things complicated. So, before obtaining the loan, carefully check your IRS returns, credit card statements, other debts etc.
- If you are fairly new to real estate investment, take advice from realtors or mortgage professionals who can guide you with various financing options. Once you are all versed with all the rules of the game, then you can start with the investments on your own.
- Try to see if you can get a pre approved loan. Pre-approved loans save time and money and also instill the confidence in the property dealer that his property won't be tied up in case it takes time for you to get the loan approved.
Line of Credit Loans: These loans can be thought of as the maximum money that a bank lends to an individual without requiring additional approvals. Having a line of credit entitles you to take several loans over a period of time without going through the approval process again. For example, instead of applying for a $100,000 loan once, a person with a line of credit can borrow $50,000 once and another $50,000 next time without going through the process associated with the approval of the loan.
Standard Loans: Well, these are the most common forms of investment property finance where you meet with a bank official to check what rate he offers you. If you feel that you are getting a fair deal, then you can either take up the loan with either fixed or variable rate of interest. It is very important to do a bit of research before considering an investment. The research should include the location of the property you are interested in and whether the property has the potential to bring you a good profit. Apart from this, you should also check the affordability of the loan the rate of interest that you will be charged.
