So, you want to get into real estate investment? Great! Now, the time has come for you to purchase an investment property. I know you’re thinking of how to raise funds to get started. Well, getting started in real estate investing doesn’t require a great fortune as there are a lot of financing options available to all investors.
To aid in your search for the best financing option for your real estate investment, here is a cohesive list which contains some of the best ways to get funding.
Federal Housing Administration(FHA) Loans
These are government sponsored loans that encourage people to buy property with a borrowing option where the buyer is required to put down 3.5%. This means that with a down payment of only 3.5%, you can buy property with many units, make use of one unit and rent the other units if you choose to. The FHA will not loan the money but rather, insures the loan for the lender. As the FHA is taking on some of the financial risk by insuring that the loan is paid by the borrower, it is easier to qualify for an FHA loan than a conventional loan.
Conventional Loans
These are the most common type of loans. When applying for a conventional loan, you will be required to make a down payment before the bank loans you the money you need and in return, you provide a lien on property that is secured by a mortgage. Conventional loans are normally underwritten for a period ranging from 15 to 30 years so they are not for people interested in short-term financing.
Hard Money Loans
Though it is not a sustainable long term plan, this is a great option for when you need to close a deal quickly. Here, the lenders use the property to secure the loan. Before signing, you’d need to be sure that you can pay back the loan as hard money loans normally have high interest rates and require a down payment or some personal collateral before the loan is given.
Private Money
This is funding sourced from individual investors. These individual investors can include friends, family, co-workers or people you share a cordial relationship. Qualifying for this kind of financing is usually easy as the requirements are not as rigid as other forms of financing. The terms to be met are flexible but note that private money may carry a higher interest rate than any kind of loan.
Microloans
These type of loans are normally designed for start-up businesses or first-time investors. Microloans are smaller than the other common bank financing. And because the loans offered are smaller, the terms for qualifying for these loans are not very strict. This is a good option for people who may not meet the requirements for other financing methods or who may be concerned about borrowing above their means.
To find the best fit, compare the pros and cons of each financing method and choose the one that best suits you.