What Are the Real Estate Investment Loan Types Available?
Real estate investment has many perks. Not only do they hedge against market volatility, but also provide a steady passive income. Owning a property is a great investment project, but financing the goal can be a stumbling block. When you don’t have enough capital to start, real estate investment loans can be a great solution. Don’t know where to start? Here are five real estate loan types to consider:
- SBA Loans
The United States Small Business Administration provides business loans to finance the improvement, renovation, and purchase of a real estate asset. Among the various types of SBA loans, SBA 504 and SBA 7 (a) are the best for real estate.
SBA 504 Loans
504 loans are open to for-profit small businesses seeking to fund a major real estate asset or buy equipment. The loans have an attractive fixed rate, a small down payment, and long-term financing usually 20 to 25 years, but you can still get a10-year term. The 504 loan, offered by Certified Development Company CDC, seeks to promote business growth as well as job creation.
CDC works together with banks to provide these loans. Often, the banks offer 50 percent of the total amount, CDC 40 percent, while you cater for the rest of the 10 percent. The SBA 504 loan attracts a fixed interest rate between 3.5 and 6 percent.
The CDC loan interest doesn’t fluctuate with market changes. However, this feature doesn’t apply to a bank loan.
With the SBA loan, you can purchase land for renovation, existing buildings, renovate or construct new buildings among others.
SBA 7 (a) Loan
Unlike the 504, this SBA loan is designed for general funding purposes. You can use the loan to finance a range of business needs, not just real estate. Although there is no minimum loan amount, the interest loan is slightly higher ranging from 7 to 9.5 percentage but this can vary based on market fluctuations.
- Traditional loans
Conventional or traditional bank loans are granted by banks and lending institutions. The loans are based on your personal financial history and you need to have at least 20 percent down payment.
- Home Equity
This financial option allows you to tap into your existing home equity. Home equity in layman terms is the part of your property you ‘own’ minus the mortgage. You can borrow money against your equity in the property.
The loan amount is calculated based on the difference between the mortgage balance and the current market value. You can get a loan through the home equity line of credit, cash out of refinancing, and home equity loan. Each of these options has different requirements, but they operate in the same way.
- Private Money
Private money is when other investors lend you capital. This form of loan is common as the approval time is quicker than the rest.
- Hard Money
Hard money is an ideal option for you if you don’t want to go through the loan application process. Unlike conventional loans, you need collateral as security. This means when you default, the lending institution will sell the asset to get the money back. Hard money loans attract a high-interest rate and have a short-term repayment plan usually one to five years.
The Heritage Finance Difference
All of these real estate investment loans are ideal and can work. However, you need to meet the requirements to qualify for one. Remember, each lender has its unique process and some loans are challenging to borrow and require personalized attention.
Searching for loan companies near you can be daunting and getting approved is also a challenge and that is where we come in. Bexley, OH-based Heritage Finance offers nationwide financial services to help you find a loan with less stress. Plus, we work with different lenders and are better positioned to match your need with a suitable funding solution thus increasing the approval rate. To top it off, the process is free.