I have spent several thousands of hours interacting with lenders and potential financers of my deals during my real estate investment career. It is important to have a clear understanding of the benefits and disadvantages of each of the various forms of loans and equity financing products available to investors these days, so you can select the most suitable financing choice for your specific need (s).Have a look at DFW Investor Lending for more info on this.
Of course, options are not only more limited than they were a few years ago, considering today’s credit climate, but the concept of a “good deal” from a lender has also changed. I passed on a few potential options when I first began looking at financing for single family homes, which were pretty decent in retrospect considering today’s tight credit market; so it is important not only to consider the types of financing out there, but also which types are more prevalent and easiest to come by.
The aim of this article is to describe the four most common forms of financing available to investors in real estate; while, of course, there are more than four ways of financing investments in real estate, the majority of these are derivatives — or variations — of the four that we will address here.
- Classical finance
This form of loan is normally made by a mortgage broker or bank, and a large banking institution or quasi-government institution may be the lender (Freddie Mac, Fannie Mae, etc). The conditions for applying for a loan are solely dependent on the current financial status of the borrower — credit score, earnings, properties, and debt. You would possibly not qualify for conventional financing if you do not have good credit, fair profits, and a low debt-to-income ratio (i.e., you earn a lot relative to your monthly obligations).
Benefits: Low interest rates (in general), low loan costs (or points) and long loan durations are the benefits of conventional financing (generally at least 30 years). It’s a perfect option if you can apply for conventional financing.