Money Lender Loans is a business that was established to provide loans on all property types to individuals and businesses. We have the experience, expertise, and capital to offer excellent services at competitive rates. As hard money lenders, Money Lender Loans understands the needs of our clients who are mainly seasoned real estate investors thus enabling us to offer quick loans with less paperwork involved, especially when compared to competitors.
We provide Commercial and Industrial loans to real estate investors and have helped many rental property businesses remain competitive by providing fast and reliable funding for real estate investments. These loans are commonly known as Commercial Real Estate (CRE) Loans and are meant for the purchase of real estate for businesses.
Whether you are investing in a single asset to buy and hold or you have a large portfolio of real estate investments, Money Lender Loans is able to help. Moreover, after the hard money loan is used to acquire the property, you can engage us for a long term loan when the need arises.
Rental Property Loans
A rental property, also called an investment property is a part of real estate purchased with the aim of using it to earn profit from rental income. Investors in real estate are hoping to purchase a rental property and rent it out for more than the monthly liabilities, keeping the balance profitable. Even though this is a popular form of real estate investment, it may not always be feasible as most investors fail to make timely decisions due to financial challenges.
Conventional lenders are keen on the creditworthiness of a business, taking into consideration factors such as the credit score of a business willing to take up an investment property loan with them. Also, the tedious process of borrowing from conventional lenders such as banks involves lots of paperwork and is quite bureaucratic thus taking months to complete.
During such times, rental property loans come in handy to enable the investor to take their investment needs to the next level. A Hard money loan for rental property ensures that you secure the property of interest when the opportunity arises which in turn guarantees you maximum returns. Hard money loan lenders for a rental property are flexible as they are mainly asset-based lenders who concentrate on a property’s value, a borrower’s down payment and their equity in the property. This fact enables them to ignore most issues which would be seen as red flags by conventional lenders such as poor credit ratings, other existing loans, foreclosure or bankruptcy.
What are the Requirements for Rental Property Financing?
A top-most requirement for a rental property hard money loan is a down payment of at least 20% from the investor and also enough funds to meet the property’s holding costs, repairs and any unforeseen circumstances. The down payment is determined by your credit score, debt-to-income ratio, and your income. The investor is allowed to take a cash-out refinance loan from their equity in other properties in order to raise money for the down payment.
The good news about rental property loans is that you do not require mortgage insurance.
Most rental property loan lenders conform to Fannie Mae and Freddie Mac’s terms and conditions which enhance standardization and thus the little variation between the loan provider’s requirements and rates.
Apart from the 20% down payment, a credit score of 620 to 680+ is ensured, a Debt to Income Ratio (DTI) of 35-50 percent, a Debt Service Coverage Ratio of 1.2+ and cash reserves lasting up to six (6) months for each property.
How to Qualify for a Rental Property Loan
The real estate market is looking better in every metropolitan area of California and the National Association of Realtors, NAR puts it, there was a rise in the prices of existing family homes by ninety-three percent (93%) in last year’s third quarter compared to the same period in 2017. This goes to show the lucrative opportunities available for real estate investors.
However, obtaining easy and quick financing is not as straightforward and quick as we would want it to be, but fortunately, with the existence of hard money lenders as Money Lender Loans, your dreams could come true.
We will provide you with tips to help you increase your chances of success when you are ready to borrow a rental property loan below.
- A Strong Credit Score
A strong credit score enables you to borrow a loan without attracting additional fees on top of your interest rate. A credit score of below seven hundred and forty (740) will have you pay fees to maintain your interest rate at the market rate, or alternatively, you will have to take a higher interest rate.
- Avoid Big Banks
While looking to raise funds for your down payment, it is advisable to stay away from large financial institutions and instead go for the smaller neighborhood banks since they have more flexibility, a better understanding of the market and they could most likely want to invest locally. Hard money lenders are also a good bet due to their wide variety of loan products.
- Creative Thinking
After you identify a property with a high potential for profits, you may consider raising the down payment through a home equity line of credit obtained from credit cards, some life insurance policies, or cash out refinance schemes.
- Make a Significant Down Payment
As noted above, rental properties are not usually covered by mortgage insurance, so, making a sizeable down payment of at least 25 percent increases your chances of even better interest rates.
What are the Rates and Costs for an Investment Property?
Rental property loan rates and costs are low and pretty similar amongst lenders if you are borrowing in your name, unlike when you are using the names of a business entity where rates and costs vary and are higher. This is because Lenders consider risks to be greater if one is borrowing using a business entity. The rates vary from 4.5-6 percent for individual borrowers and between 6-12 percent for businesses. Other costs are associated with Origination fees, loan points and closing costs which typically range between 1-2 percent of the loan amount.
A prepayment penalty applies if you prepay your loan before the first five years of the loan term. Paying off the loan in the first year attracts a 5 percent charge, with the fee decreasing by one percentage point every year after. There is no prepayment fee after 5 years are over.
How to Apply for an Investment Property Loan
The process is also standardized amongst most rental property lenders and generally follows the following three steps.
- Rental Property Loan Pre-Approval
Here, you submit all your employment and financial documents to the lender for verification purposes and so that they can run your credit. The documentation required includes;
- Proof of Rental Income,
- Personal Tax Returns (at least 2 years),
- Copies of Lease Agreements,
- Purchase Contract, and
- Property A
Here, you are notified of the amount you qualify for.
- Rental Property Loan Underwriting and Approval
You now want to shop for an investment property based on the amount pre-approved by your lender, who then underwrites the deal once you find the ideal property. The property has to meet the loan’s eligibility criteria. For instance, a six-unit property would not be approved as it is seen as a commercial property.
- Rental Property Loan Closing
This is the last step of the loan application process. Here, you wait on a property appraisal and provide any required additional documents. Almost every lender has a 30-day loan closing period.
What to Consider When Buying an Investment Property
At Money Lender Loans we want you to thrive in your business because your success is our success. As such, we would like to feature some key points to consider while shopping for an investment property.
- Location- Popular vacation spots in Orange County together with property in high demand areas could be termed as having a high return on investment despite such property having high price tags.
- Upgrades and repairs- The amount of work that is required on a property to restore it to a habitable state should not be too expensive such that you will not earn your investment back.
- Type of Property- The property type that you invest in should meet the kind of demand there is in the area you invest in.
Who is Eligible for a Rental Property Loan?
If your business classification is a sole proprietorship with DBA partnerships or not, Corporations including S corporations, Limited liability companies or Partnerships, then we can enable you to invest in your dreams at Money Lender Loans. Eligible property includes single or multiple family residences, duplexes, Triplexes, Fourplexes and apartment buildings.
We may fund loan needs for Cash out refinance, Finance for Purchase, and Rate and Term refinance.
How to Buy an Investment Property with No Money Down?
Most hard money lenders for rental property loans will require you to raise at least 20% down payment which might be a challenge, however, you can buy property for rental purposes with no down payment, and without locking you’re your money in a property purchase. As a seasoned business in the real estate market, we will provide you with possible ways on how to go about this.
You could be allowed to roll down your down payment into the buying price if you have a good credit rating and positive lending history. This attracts a higher interest rate but under favorable circumstances, it will not impact your profit margin. If possible, you could negotiate a customized installment plan that allows you to clear your down payment on a monthly basis.
Some scenarios may allow you to trade houses or something else such as a car, land, or services with the seller. If successful, this may allow you to escape capital gains that are associated with selling a property.
It could also be helpful if you brought in an investment partner business with which you can share equity to the property while they bring in the much-needed cash. You could split profits with the other business in an agreed ratio.
A property with a rent to own option would allow you to save for the down payment while you live in the house as a tenant then purchase the property after you raise enough funds. You could also negotiate a contract that allocates part or all the rent towards the down payment. This would however be ideal for individuals and not businesses.
What Loan Products are Available for Investment Property?
Lending to investors may mean attracting additional risks for hard money lenders, but at Money Lender Loans, we have been able to design a number of loan products for rental property investors which include;
- VA and FHA Loans
Federal Housing Administration (FHA) loans insured by the Federal Housing Administration are made for low and moderate borrowers while the VA loans are guaranteed by the US Department of Veterans Affairs and are available to American veterans and service members. These loans are available to rental property investors given that they occupy one of the units in a multi-story unit they purchase or live in one unit of a primary residence for a VA loan.
FHA loans attract as low as 3.5% down payments while VA loans come with 0% down payment.
- Conventional Loans
These are basic loans that are not government backed. The property is eligible for purchase by Fannie Mae and Freddie Mac because they fulfill the set-aside requirements. They are also called conforming loans and come with a 20% down payment because they do not have mortgage insurance.
- Other Available Options
If you have a primary residence, you can either choose between a Home Equity Loan and Home Equity Line of Credit (HELOC). A Home Equity Loan allows you to use your home as security is a type of second mortgage, where if you have enough equity, you can borrow against your home. The first mortgage is the one you used to buy the property.
A HELOC allows the lender to lend a maximum amount within an agreed period with the collateral being the borrower’s equity in their house. Home Equity Loans and HELOCs can be used to cover the down payment on the new investment property.
What are the Benefits of Investing in Rental Properties in California?
If you invest in one or multiple rental properties you will get to enjoy its perks. Mostly, people are looking for a source of passive income, but as time goes on the property value appreciates. Let us look at some of the benefits you enjoy if you decide to go down the investment property way.
- Self-employment- If you are looking for something better than a 9-5 job, then you may consider investing in rental properties. You may even get a property management firm to deal with tenant inquiries and you do not need to answer to anyone.
- Ease of entry- It is easy to start in the real estate market even if you are not a savvy business person. With that said, it is important that you conduct research into the market you want to enter while formulating marketing strategies and property management tips.
- Source of passive income- When tenants occupy your property you will have a steady source of passive income monthly, even as you continue to pay your mortgage down. In case you engage a property management firm, then it even gets more passive.
- Tax Benefits- Rental property investments attract tax cuts in ordinary and necessary expenses, improvements and depreciation. This implies that you can deduct the interest on the mortgage, maintenance costs, insurance and the wear and tear on the property.
- California Market Trends- California’s rent is ranked 6th in the nation, with rent averaging one thousand and three hundred ($1300) dollars. California, a suitable market for real estate is poised to grow even as the unemployment rate falls below 4.7%.
- Clear the Mortgage- Finally, it is possible to clear your mortgage with people’s money given that the property’s cash flow is reliable.
Finding a Rental Property Loan Lender Near Me
As a top hard money lender in California, Money Lender Loans has earned a reputation for superior customer oriented service which focuses on each client’s unique needs. Whether you are a first time borrower or a repeat customer, we can guarantee a superior experience. Our loan officers will assist you in each step of the loan application process. To learn more about our wide range of products, competitive rates, or to ask a question, kindly call us at 949-409-4372. We serve Orange County and surrounding areas. Call us Today!