Understanding Loan Terms

Understanding Loan Terms

A Guide On Investment Property Loans

by Gregory Hall

Knowing where to invest is immaterial when you have no idea of raising investment capital. Investment property loans offer a quick solution given the huge financial reserves accessible through financial lenders. However, navigating through property financing is complex. Thus, understanding investment property loans requires a comparative analysis of the lenders. 

What Is an Investment Property Loan?

An investment property loan refers to the credit borrowed for the specific purpose of purchasing or developing a property. Therefore, an investment property loan is a financial product designed for potential property investors. There is a difference between investment property loans and traditional loans. In the latter, one borrows general funds and decides to buy property. In comparison, an investment property loan has adjusted interest rates, payment duration, application process, and speed. 

Reasons for taking investment property loans include:

  • Benefit from a fixed-rate mortgage or adjustable-rate mortgage
  • Benefit from property tax breaks
  • To maintain liquidity by not having to sell fixed assets
  • To diversify a portfolio and lower investment risk
  • To overcome capital barrier for investing in high return real estate sector

Main Lenders in Investment Property Loans

Mortgage lenders: These lenders offer loans in the form of mortgage to buy homes. This option is a popular investment tool in the real estate industry. Mortgage lenders include banks, credit unions, and financial corporations. To qualify for a mortgage investment property loan, one must meet specific conditions such as credit scores, reliable income, and make a down payment. The advantage of investing in property through mortgage is securing a huge loan at low interest payable over a long period. More so, there is an option for refinancing the mortgage. However, a mortgage is a commitment to long-term debt with the risk of losing the property since it is an unsecured loan. 

Hard money lenders: These lenders avail credit to individuals looking for a short-term loan, mostly for property development. Hard money lenders borrow their name from the severity of lending terms. Compared to other lenders, borrowing costs are higher due to high interest rates. The other disadvantages include a short repayment period and collateral requirements. However, getting an investment property loan from hard money lenders is easier and quicker. Hard money lenders are not thorough with credit scores and are flexible with collateral. 

Private money lenders: This form of lending arises when one gets an investment property loan from individuals in their network: Such lenders may include business associates, friends and relatives, or individual investors. Thus, hard money lenders can be private money lenders. This option is speedy and has fewer formalities. However, private money lenders are less professional and offer limited financing. 

Mortgage lenders, hard-money lenders, and private money lenders provide investment property loan options. Each of these alternatives has pros and cons. Understanding the lenders can narrow down the choices and maximize benefits. for more information, contact a company that provides investment property loans.


About Me

Understanding Loan Terms

When I started my own company, I knew that I needed a little business capital and fast. In an effort to raise money, I worked with various lenders to discuss loans, financing, and special terms. Unfortunately, I quickly discovered that not every loan was created equally. Some loans had almost predatory terms like high interest rates and penalties, while others were completely fair. Fortunately, a business consultant of mine taught me about loans and financing, so that I could make better choices in the future. The information on this blog saved my business, and I know that it can help yours too.