Financing a Real Estate Investment
When do you think is the best time to find great deal in real estate? Experts suggest buying properties when the market is down, or when the prices are low. It would be great to invest in all the properties that you find interesting, but it still depends on your credit rating. If your current credit does not meet the requirements, it would be a pity. For those who feel financially secure and with good credit rating, you can look forward to start a good investment.
There are a number of reasons why people invest on real estate. Newlyweds buy a new house to start a family. Single parents move to a smaller house because it’s cheaper. Others buy a property because of job transfer. And of course, there are people who buy homes, renovate it and sell again in the market. In any of the reasons mentioned, it is best to be savvy when it comes to the financial aspect. How was it during your first home buying experience?
Many people opt for the traditional way, which is through banks, mortgage companies and credit unions. These are the common choices for financial source when investing in real estate. The rates vary, but it is fixed and you can choose between 15 and 30 years. When you are opting to have the investment financed through bank, be prepared with an outstanding credit score. There is a better chance for approval if you have a score of at least 680. The lenders have become stricter with their requirements, like asking for income and debts documentation. This is traditional, but is considered a safe method.
To invest in real estate in an untraditional way, you should check out the ‘seller carryback’ method. No bank is involved but the property seller acts as the bank for the interested buyer. This method involves the seller or lender to carry a second mortgage on the property. The property buyer pays the seller every month according to the agreed price. Sometimes, the seller will set a number of years on when should be the full payment made. This is a good choice for those who are interested to refinance later.
How about the ‘seller’s second’ method, have you heard about it? This is actually used often in the real estate industry, especially when the bank can only lend a certain amount of money and not the full selling price of the property. In order to make up for the difference between the purchase price and the amount approved by the bank, the seller of the property may offer adding a second mortgage on the property. Prior to agreeing to this method, it must be made sure that the first mortgage holder agreed to it. There is no guarantee that it will be allowed, because other lenders and banks do not.
When your credit standing and the current funds are not enough to get your investment started, you can consider the leasing method. This allows you to own the property within two to three years even if you have little to no down payment required. The number of years given is more than enough to procure the amount needed in order to buy the property. Both the property owner and the buyer must have an understanding from the start of purchase that it can be purchased at the end of a specific rental period.
Now how would you like you real estate investment be financed? Always do your research first and do not be ashamed to ask the experts, especially when it involves investing a huge amount of money.