How To Increase Your Real Estate Loan Options
As popular as hard money investors have gotten over the past few years, the number one way to obtain a property is still through lender financing. Yes – the number of investment loan programs and products was greatly reduced immediately after the mortgage collapse, but over the past few years, they have started to come back. If you haven’t looked for a new mortgage in a while, you may be surprised at just how many new or updated programs are out there for investors. Whether you are buying or selling, the more programs that you can take advantage of, the better your investing business will be. Not all of these programs will apply to you or what you want to do, but you never know when you will need to use one of them in a pinch.
- FHA: Many investors don’t consider an FHA loan as an investment product, but if you are looking to acquire your first property it certainly can be. An FHA loan will allow you to apply a reduced down payment of 3.5% on a one or two family property. There are many investors who will get their start by living in one side of the property while renting out the other. This allows you to live relatively rent free while learning how to deal with tenants and run a rental property. You can also utilize an FHA loan to any prospective buyers on properties that you sell. There have been recent changes in the amount of private mortgage insurance coverage that is required that has made FHA loans as affordable as they have been in years. There are some basic property requirements, such as hand railings and no exposed peeling paint that you can get a jump on before you list your property. Regardless if you are looking to buy or sell, you should stay updated with any FHA program changes.
- Construction loan: Construction loans surged in popularity last decade when many new builders entered the investment market. On the surface, a construction loan sounds complicated ,but really works in two separate parts: acquisition and construction. On the acquisition side, you typically need about 20% of the purchase price to close on the property or the land. Once this transaction is done, you, or the builder, will receive periodic draws for the work that is scheduled to be completed. All work must be done by a lender approved contractor and inspected as you go. When all of the work is completed ,you will have an appraisal done on the property and your new loan will be based off that amount. There is an increase in paperwork and red tape on your end, but if you don’t have an excess of working capital, it can be a good program for you.
- 203K Rehab Loan: The rehab loan is another loan option for those that don’t have a surplus of capital to improve their property. Not only can this work if you are looking at your first property but can be a great selling tool for buyers. Instead of doing the work yourself and spending the money you can align yourself with a mortgage broker or lender who knows the ins and out of the 203K loan and market the property with them. This is a government loan so there is not a huge down payment requirement and the loan applicant can receive $35,000 on a streamlined loan or more depending on the applicant. The work needs to be largely cosmetic in nature and approved by the lender in phases similar to a construction loan. If you can get your buyers into the property with 203K loans they can style the house to their liking and you will not have to spend your own money.
- Stated Commercial Loan: Stated income is seen as a dirty word in many investing circles but it has started making a comeback on the commercial side. A few commercial lenders are now offer stated income loans with strong credit scores and an increased down payment. There has also been a sprinkling of these loans into the single family investment market that will surely spread to the masses by the end of this year. The downside to these loans is the increased down payment amount coupled with higher than average interest rates. If you have trouble documenting all of your income these loans may be your best bet but if you have income, assets and strong credit you should consider other options.
- Hard Money options: The idea of obtaining a hard money loan may be intimidating to some investors, but it could be the best way to purchase properties. Even if you have sterling credit, you should have a hard money lender available that you can reach out to if you need a quick closing. With the increase of hard money lenders available, there are more options and better investor programs than there has been in years.
New products and programs are constantly hitting the market. To stay on top of these changes, you should establish a relationship with a lender that can keep you updated. You never know when you can get a deal with a new product that you would not have been able to otherwise. It is also smart to stay on top of program changes so you can save any deals you have with prospective buyers. The best investors utilize all of the options they have available and know every way they can close a deal. The more loan programs you know the higher your closing percentage will be.
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