Real estate is becoming one of the safest areas you can invest your money. However, the challenge that most investment property owners and potential owners face is acquiring finances to fund their deals. If you are looking forward to finding a financing strategy for your investment property, it is crucial to understand your options. At Money Lender Loans, we offer a wide variety of loans, including an investment property loan to purchase or fix and flip a property. Our goal is to give all residents of Orange County, CA, a good lending experience.
Overview of Property Investment Loans
An investment property is any real estate property that is purchased to resell or earn income from renting out the units. Regardless of whether the property is individually owned or owned by a group of investors, you can take a property investment loan against it. Also, an investment property may be regarded as an asset you buy for the sake of appreciation, such as securities or art. Common types of investment property for which you can get a property investment loan are:
- Residential - This involves the purchase of a rental home that is rented out. They could be condominiums, apartments, single-family homes, and other residential structures.
- Commercial – Investment properties do not have to be residential. Some corporations purchase properties to be used for business purposes. However, the load for these properties is much higher.
- Mixed-use – Such establishments could be used for both residential and commercial purposes. For example, a property can have residential houses at the back and stores on the front part.
Most individuals, as well as small company owners, invest their money by buying and managing investment properties. Even for those who have the finances to purchase and manage these properties, they prefer to finance these investments with loans. The property investment loans will help facilitate your projects of rehabilitating properties and selling them or renting out. The loans that finance these projects are often short term and are used for residential or commercial properties. However, that property should not be your primary place of residence but can reside in one of the units.
When you secure a property investment loan, the property will act as the collateral. You can take a loan to purchase or even renovate your property. If you get a loan for a fix and slip property, you will repair the property, and the proceeds from the resale will be used to pay for the loan. If you intend to rent out the property for which you are getting a loan, you will need to replace the loan with a long-term mortgage after some time. The amount of money you get as an investment property loan will depend on the lender's loan to value requirements. Private money lenders will often provide 60 to 80% of the property's worth after the renovation.
Private money loans are suitable for both long and short term investors in need of quick financing. If you are a long term buy and hold investor, you can take a private loan for your property investment to purchase and renovate a property. After you find tenants, you can get a conventional loan to pay the hard money loan.
Sources of Property Investment Loans
Investment property financing comes in different forms, and there is a criterion you have to meet the specific standards for each type of loan.
- Conventional Bank Loans
A conventional loan for your property will follow all guidelines and is not tacked down by the federal government. Banks expect you to make a 20% down payment for your residential home, but with an investment property, the lender requires a 30% down payment. You can use a gift to pay the down payment, but they have to be documented. Bank loans are not easy to acquire since they will check your credit score to determine your ability to pay the mortgage. Also, the lenders will review your income and assets.
- Fix and Flip Loans
Being a landlord and dealing with tenants can be a hectic job. That is why most investors find it a better path to flip the property. This will allow them to receive the profits for the property in one lump sum after selling the house instead of waiting to earn monthly income from rent. A fix and slip loan allows you to complete renovations and put the property back to the market. Most of these loans are hard money loans that use the property as collateral. A private loan is easier to qualify since hard money lenders do not consider your credit score but are more concerned about the profitability of the property.
However, a fix and flip loan is always short term, thus expecting you to pay back the money within the stipulated time frame. This will bring you more pressure to quickly resell the property and use the returns to clear your loan.
- Tapping Home Equity
Drawing on your home equity through a cash-out refinance is another way through which you can obtain a property investment loan. In most cases, you will be able to borrow up to 80% of the property equity. A cash-out will come with a fixed rate but can be extended depending on the life of your existing mortgage.
Investing in a profit-based property is a risky venture, but they offer a good payoff. If you know where to look, finding the source of finances for your investment property will not be hectic.
- Private Money Loans
The private money lender is entities who want a good return on investment for their cash. Private money loans for property investment are suitable for individuals who have been turned down by the bank as a result of poor credit scores. These loans have fewer formalities and less strict conditions for eligibility. However, before approaching these lenders for a loan for your investment property, you should be aware that the loan is secured with a promissory note. If you fail to pay the loan, they may foreclose the property you used as collateral.
Do I Qualify for a Property Investment Loan?
When you need a quick form of financing to utilize a profitable real estate opportunity, you should consider seeking help from a private money lender. These loans are faster to acquire, but you have to meet the qualification criteria so the lender can be sure you are capable of paying the mortgage. The rules include:
Unlike the bank loans, your credit score will not be of great importance when applying for property investment from a private money lender. However, the lender will want to have a look at your tax returns for the past two years. This will help show whether your income can support monthly loan interest payments
Resale Value of the Property
This is the most crucial factor which influences the lender's decision. Your property should have a resale value that will quickly pay your outstanding loan and bear profit for you to qualify for an investment property loan. A private money lender will require the first line position meaning that you give priority to paying the mortgage immediately after reselling the property.
Personal Financial Statement
When applying for an investment property loan, some lenders will want to check your debt to income ratio. All your existing debts will get compared to your regular income to determine if you are capable of repaying the loan. Private money lenders are less strict with their conditions of giving the loans. However, they still want to ensure they will get back their money.
Individuals who can prove their experience in flipping have an advantage with the money lenders. This because they feel more confident in your ability to utilize the loan efficiently, product returns, and pay back their money. Although a good track record is not a guarantee of qualifying for the property investment loan, it may put you in a position to successfully negotiate for the investment property loan.
A private lender takes notice of how you organize your loan request package. You should submit your LLC organization documents, your building plans as well as the purchasing contract. The lender will be more confident to give you the loan if they see that you are organized with the project.
Benefits of getting your property Investment Loan from a Private Money Lender
Private money lenders are an excellent opportunity for you to get your investment property loan. While some traditional banks take this chance to exploit you, the private lender will view the investment as you do. Here are some reasons why you should consider getting your property investment financing from a private money lender:
- Quick Access - On average, private lenders can underwrite and fund your request in one to three weeks compared to banks that can take up to three months to approve. If you are hoping to get a property investment loan to utilize a property deal opportunity, the timeframe offered by the private lender or more conducive.
- Asset-based Lending - To determine your ability to pay the loan, private lending will be driven by the value of the property you are purchasing. Therefore you do not need to worry about your credit score when trying to secure a loan. Also, the private lender will grant your loan eve for a vandalized property. This is because they see potential in the property as long as you can fix it sell and pay off the loan.
- Shorter-term loans – Private lenders will offer you a short term loan compared to the conventional ones. This will save you from losses incurred when paying for the late penalties. These short term loans will finance the property investments you find a traditional permanent source of finance.
- Profitability and Control – Private lenders for investment properties, will give you better access to the loan while still maintaining the benefits from the traditional loans. Also, you will have more control over your credit since you do not need to have equity partners.
- Approval – The most crucial factor considered private lenders when giving a loan is the collateral. If you wish to buy or renovate an investment property, the loan lender will provide you with as much as your property is worth. If you have a foreclosure, it will not be considered when determining your eligibility for the loan.
- Availability of rehab financing – If you get your loan from the private lender, they can give you an amount enough to purchase and renovate an investment property. This is in contrast to the conventional bank loans, which require the property to be in good condition before financing.
However, if you get your property investment loan from the private lenders, you are likely to pay a higher interest rate compared to an average bank loan. Even if your poor credit score does not affect your chances of getting the loan, it may increase your loan interest rate. Also, you will have to use the property you want to buy or flip as collateral for the loan. Therefore, your investment property has to meet the eligibility criteria for the loan you hope to get. Fortunately, all these shortcomings will not hinder your property investment plans.
Application Process for an Investment Property Loan
Proper documentation is of the utmost importance when applying for a property investment loan. Regardless of the type of lender you choose to acquire your investment property loan, you will be required to follow the following steps:
- Investment Property Loan Pre-approval
Private money lenders use this phase to give you a general idea of your potential loan options. After seeing the possible loan costs fees and terms, you can set the budget to move forward with the purchase of the investment property. This will give you a chance to negotiate a price and closing the property deal.
Loan pre-approval is the initial stage of securing a property investment loan from a private money lender. This is where you provide all the documentation to the lender so they can verify and run your credit to determine the amount you qualify and what the lender is comfortable to give you.
- Investment Property Loan Underwriting and Approval
The next step is to start the process of shopping for an investment property based on the pre-approval amount. Once you find a suitable property and make an offer, the money lender will begin underwriting your deal. During the underwriting period, all your financial information will be double-checked. The property will also be evaluated to make sure that it matches the loan eligibility requirements.
- Funding Phase
Your property investment loan will get approved during the funding phase. You are required to give more specific and detailed information to the lender so they can make the final decision on your loan request. The lender will have an in-depth look at the documents you submitted and make sure the loan they give you will get paid.
What Documents do I need when acquiring a Property Investment Loan?
Documentation is of great importance when acquiring any loan. The following are typical documents involved in a property investment loan:
- Letter of intent – The LOI is a formal document that acknowledges all parties involved in the loan agreement. Although the letter of intent is not legally binding, it serves to prevent future miscommunication.
- Purchase and sale agreement document – This document lists the history of ownership of the property. After you have reached an agreement on how much you are willing to purchase the investment property. This will help indicate if any other person other than the seller has legal ownership.
- Proof of funds – Private lenders will not give the full amount to purchase or flip a property. You will often get 80%. Evidence of funds shows where you will get the rest of the money to complete the purchase.
- Mortgage note – This is a promissory note you sign when getting the property investment loan.
- Proof of rental income – The proof of income is a document you preset if you wish to use the property for rental purposes. This will give the lender an overview of your ability to pay the loan.
- Property appraisal – which can be completed after the loan is pre-approved.
Get a Property Investment Loan from a Lender Near Me
A critical factor in determining where to get your investment property financing is being able to know the different types of lenders. Also, you need to understand the kind of loan options available for your needs and find out if you qualify. At Money Lender Loans, we will help you acquire the type of financing you need. As long as you are eligible for the particular loan, observe our terms and conditions by paying back at the scheduled time. We apply our experience in the private money lending industry to give you a quick and convenient loan so you can maximize all available property opportunities. Apply for an Investment property loan in Orange County, CA today by calling us at 949-409-4372.