What are the Best Loans for Property Investors?

types of home loans

Like homeowners, property investors need loans in order to finance their properties. Property investors can select from several different loans, and they can get a loan from multiple sources including a bank, online marketplace, private lender, or hard money lender. If you are thinking of investing in property, an experienced mortgage lender can be a good resource to help you get started.

An investment property is a property that you purchase in a real estate transaction with the end goal of earning a profit on the property. You can earn a profit either through the revenue collected by rental income or by selling the property in the future. Sometimes you can earn a profit from both. The property may be held by a single investor, multiple investors, or a corporate entity. Investment properties can be either a short-term or a long-term investment. Many long-term arrangements result in flipping a home, which means the investor buys a home, makes improvements by renovating or remodeling the home, and ultimately sells it for a profit. Unlike other types of real estate, investment properties are not used as the investor’s primary residence. Instead, they are purchased exclusively with the intent of producing income.

mortgage company Las Vegas
mortgage lender in Las Vegas explains how to finance an investment property

Best Loans For Real Estate Investors and Their Types

There are several different loans Las Vegas available for property investors. The most common include:

  • Conventional loans
  • Hard money loans
  • Home equity loans

Conventional loans are one of the most common loan types for property investors. This mortgage Las Vegas is not backed by the government. Instead, it conforms to Fannie Mae and Freddie Mac guidelines. Conventional loans generally require a downpayment of 20 percent, but investment properties may require a 30 percent down payment instead. As with buying a traditional residence, property investors must have a good credit score and credit history to get approved for a conventional loan. A mortgage lender will also review assets and income. Borrowers must also demonstrate that they have the financial reserves to pay off their current mortgage along with the loan payments for their investment property. Prospective property investors should note that they should have at least a half-year’s worth of cash on hand to cover payment for both kinds of loans Las Vegas.

Hard money loans, which are also called “fix-and-flip” loans, are another option. A hard money loan is a short-term loan arrangement. It is designed to help borrowers finance renovations so that they can put the house back on the market as soon as possible. There are specialty lenders for this type of loan, but you can also get a hard money loan from a crowdfunding platform. As with any loan, there are advantages and disadvantages to getting a hard money loan. One reason to consider this loan is that it may be easier to qualify for than a conventional mortgage. Although income and credit are still considerations, the property’s profitability is the primary factor. Lenders will look at a home’s after-repair value (ARV) when determining if the borrower is likely to afford a loan repayment. With this type of loan it is possible to get funding in just a few days rather than several weeks or months, as is the case with a conventional loan. On the downside, hard money loans have high interest rates up to 18 percent, and the loan payback period may be fairly short compared to other types of loans. (Read more on how to get the best mortgage rates in Las Vegas.)

Home equity loans, or HELOCs, are another option for property investors. Home equity loans allow investors to borrow up to 80 percent of a home’s total equity value, which can then be used to buy another home. Using home equity to finance an investment property has advantages and disadvantages. With home equity loans, mortgage rates Las Vegas are not fixed, which can make it difficult to predict your interest payments each month. The prime rate, which is the interest rate on an equity loan, is subject to change and can easily make your payments increase. It’s possible to get a longer loan term to lower your monthly payments, but you may end up paying more money overall, as you may end up paying more in interest over time.

If you are looking to start investing in real estate, getting the right loan is key. If you need assistance getting started, contact an experienced loan officer today. A loan officer can explain your options and guide you towards the right loan for your unique situation.