Real estate is one of the best ways to build wealth, but most of the time some form of financing must be obtained to either acquire or rehabilitate the property. Selecting the type of loan is mitigating the returns on investment that you are going to earn. Now, various types of investment property loans exist in the market, and each of them specializes in certain types of investment property loans according to the needs and financial capability of most borrowers. In this article, it will be made easier for you to determine which option to take in your investment in real estate.

Regular Loan for Purchase and Acquisition of Investment Homes

Of all types of investment property loans, perhaps the most usual is the conventional mortgage. These are normal loans that are advanced and that government institutions do not guarantee. Conventional loans are best suited for buyers with good credit histories and sound sources of income.

Key Features of Conventional Loans:

• Fixed or Adjustable Rates: People can apply for a loan with a set interest rate and, hence, a constant monthly payment, or they may go for ARM loans, which have lower initial interest and, hence, lower monthly payments during the first years but may vary in the following years.
• Down Payment Requirements: It is standard practice to expect the borrower to pay a down payment of 15% to 25% of the property, especially on investment properties, based on the borrower’s credit score and the type of property.
• Loan Terms: Conventional loans are typically available at terms of 15 years and 30 years to allow for reasonable monthly payments in the future.

Traditional mortgages should be preferred by buyers, who want to establish themselves in some stable conditions and pay slightly higher interest rates for the received financial assistance in case they qualify for the program.

Hard Money Loans

Real estate investors especially like hard money loans because they offer short–term funding. Unlike other loans, which are credit-based and secured by the borrower’s credit rating, are hard money loans asset-based and backed by the property in question? They are mostly provided by private players and are characterized by short maturities.

Key Features of Hard Money Loans:

• Fast Approval: A great advantage of hard money loans is the quick approval, which can take just a couple of days at most. This is good for investors who want to close their deals quickly.
• Flexible Requirements: Due to the fact that a hard money loan is more concerned with the value of the property rather than your credit history, such loans are much easier to get, even with bad credit.
• Higher Interest Rates: The advantage of fast approval is that hard money loans are comparably pricey to other forms of funding, such as conventional loans.

Hard money loans are best suited when the investor intends to use the money for a short period, say, in a business such as house flipping.

FHA Loans for Investment Properties

The FHA loans are meant to be used for the purchase of primary residences, but there are circumstances whereby investors are allowed to put the loan to use. Another attractive feature of FHA loans is to enable a buyer to acquire property containing more than one unit of residence, of which the buyer can occupy one of the units or even more depending on the type of facility he or she is acquiring and where this kind of housing is to be occupied; the conventional down payment is acceptable.

Key Features of FHA Loans:

• Low Down Payment: FHA loans as low as a down payment as low as 3.5% which makes it easy for new investors and those who have limited funds.
• Competitive Interest Rates: Such loans are cheaper than normal loans in the sense that they attract lower rates of interest, reducing overhead expenses.
• Owner Occupancy Requirement: For an FHA loan, the owner should occupy one of the units for at least one year as one’s principal residence.

It is ideal for would-be investors who want to start by purchasing multi-family residences, with one unit used for habitation.

VA Loans for Investment Properties

Using the VA loan program, the Veteran and active-duty military personnel are allowed to buy investment properties so long as one of the living units is occupied by the Veteran.

Key Features of VA Loans:

• No Down Payment: VA loans offer no down payment, which means the buyer will not have to lay a single dollar on the property.
• No Private Mortgage Insurance (PMI): Unlike other conventional loans, VA loans do not require PMI payment, which means lower expenses.
• Flexible Credit Requirements: The second most popular type of loan is VA loans, and they are usually offered with less strict credit scores, so more people can afford them.

Therefore, it’s fitting that VA loans are perfect for any veteran wanting to purchase a multi-unit dwelling while enjoying the benefits of their military service.

Commercial Loans for Investment Properties

People need to use a commercial loan to purchase large income-producing real estate like office spaces, shopping malls, or apartment buildings. Commercial loans are meant for real estate business persons who intend to use the money to make income through commercial buildings.

Key Features of Commercial Loans:

• Higher Loan Amounts: Since the capital outlay is much higher in real estate investment, commercial loans provide higher loan limits than residential loans.
• Flexible Loan Terms: Credit risks can be distinguished on commercial loans with a variety of conditions, such as interest and amounts paid within the credit on the payment of a large amount borrowed (interest-only or balloon payments) that enable investors to choose the right approach.
• Strict Qualification Requirements: Since the loan size and the associated risk to the lenders are higher in this system, there are more specific requirements for at least credit scores and considerable funds.

Business use loans are well suited for experienced clients who wish to diversify their portfolio with sizeable, income-producing real estate.

Conclusion

This article talks of the several types of investment property loans to give you the best decision towards the kind of loan that best suits you depending on your objective and planned course of action. No matter whether a conventional loan, a hard money loan, an FHA loan, VA loan or a commercial loan provides you with the desired financial solution, all of these include their peculiarities and, correspondingly, their restrictions. But with a professional lender such as Lord Mortgage and Loan, you can be sure of getting the funding you need to make your real estate investment profitable.