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What Are Your Loan Options For An Investment Property?

Are you interested in buying an investment property, but need to borrow the money to do it? If so, it will help to know what your options are for purchasing that property you have your eye on.

Conventional Loans

You can always get a conventional loan from a lender, but they are going to have the same type of qualifications that are needed to get any loan through Fannie Mae and Freddie Mac. This may be a type of loan that you shy away from because your finances are going to be scrutinized during the underwriting process. The purchase is going to be evaluated the same as if you were getting a single-family home for your primary residence. For example, your debt-to-income ratio may be too high because you have an existing mortgage on your home. 

Portfolio Loan

Another option is a portfolio loan, which is similar to a conventional loan without the possibility for it to be sold to Fannie Mae and Freddie Mac. The loan will always stay with the lender, which gives you more flexibility because they do not need to follow the same strict guidelines as a conventional loan. 

A portfolio loan typically comes from community lenders, since they plan on keeping the loan to make their money back from it. It will also help if you have an existing relationship with the community lender, which can help get you better rates.

Hard Money Loan

A hard money loan is through a private lender, and they are focused on the numbers related to the profits on the investment property. You are going to see higher interest rates with a hard money loan, but there are less restrictions and you're more likely to have the loan approved if the investment deal makes sense to the lender.

One thing to keep in mind with a hard money loan is that the lender wants to get their money back fast. They do not want to be invested in the property for 15 or 30 years, which is why they look for those investment properties that will be flipped for a profit over a short period of time. 

Not sure which type of loan will work best for your investment? Speak with a lender in your area that offers investment property loans. They can help find the type of loan that will work best for you and the property that you are interested in.