Having a real estate or rental property business can be a great way to earn a steady, passive income. However, investing in real estate is not as easy as it looks. You must be well researched before diving into this business and should have ample knowledge about navigating the financial process and seeking investors. Learning about the various ways you can fund your real estate deals important, and in this article we’ll discuss the top three ways you can do it.
1. Conventional Loans
Conventional Loans are suitable for people who already have a primary residence. Conventional loans are the most common type of mortgage. In conventional financing, the bank gives you money in exchange for a down payment on your secured property.
If the borrower plans to occupy the property they purchased as their primary residence, then they usually pay 5% of the purchase value as the down payment. The bank typically expects you to put 20% of the house purchase value as down payment (increases to 30% if the borrower has an investment property).
Investors prefer paying 20% as a down payment as it saves them from private mortgage insurance. In addition to the down payment, lenders also check the borrowers’ ability to afford the existing mortgage. The lender will also review your assets and income to see your affordability.
2. Federal Housing Authority Loans
These government-sponsored loans encourage people to borrow money by giving only 3.5% as a down payment. It is much easier for a borrower to qualify for an FHA loan than a conventional loan, as you only need a minimum credit score of 500-650.
To qualify for an FHA loan, you need to live in the property or house you are planning to purchase for at least one year. Even though it requires more paperwork and a little more time than a conventional loan, the loan is guaranteed.
Furthermore, you can take only one FHA loan at a time under your name.
3. Private Money Loans
As the name suggests, private money loans are loans given from one individual to another. Usually, the lender is a relative or friend. With that said, you can also get loans from local real estate investors. A good idea would be to attend local events and network with professional investors in the industry.
BiggerPockets is a real estate podcast that keeps a directory of local real estate investment clubs. You can look for networking opportunities through this largest and longest-running real estate investing strategies podcast.
The terms and conditions in the case of private money loans depend on the kind of relationship the lender and borrower have. It can be highly predatory, or it can be a symbiotic relationship. Typically, a legal contract allows the lender to foreclose the deal if the borrower is in default. Hence, it’s important that you take precautions in your control to avoid that.
You should also work on building a reputable relationship with the lender if you are considering looking for private investors.
Want More Information On How To Fund Your Real Estate Deals?
Investing in real estate is risky for sure, but with proper research, one can lend a good deal for themselves. The process can be a bit intimidating for newbies; however, a good investing strategy and mindful choices can get you ahead in this business.
If you find yourself stuck, Annetta Powell can help! With over a decade working in real estate, we’ve learned a thing or two that can help you find your entrepreneurial success. Check out our real estate investors blog for the latest articles and free resources, or register for one of Annetta Powell’s wealth-building courses.