Any time a decision is made to purchase property, whether this property is investment property or for your personal residence, the question of how you are going to pay for it is bound to arise, as it should. Property is probably the single largest investment that most people will make within their lifetime. Despite what the late night infomercial gurus claim, there really is no one size fits all solution for financing. Homes that are for sale for no money down are few and far between and most courthouses have been combed fruitlessly in search of those four hundred dollar (back tax) properties. So, unless you have happened upon the pot of gold at the end of the rainbow, you are going to need some sort of financing for your property.
If you are planning for this property to be an investment property, you have some unique financing options, or at the very least you are more likely to be able to enjoy some of the more creative alternatives to typical financing. Here are some of the options that would be available to you and why they may be a good idea for investment properties when they wouldn't necessarily be wise choices for your residential property.
1) Adjustable rate mortgages. This type of financing allows you to make lower monthly notes for a specified period of time. The problem with these for a residential loan (more specifically long term loans) is that the interest rate rises at the end of the specified period. One would hope that for an investment property, it would have been sold for a profit by the time the higher interest rates kick in. These loans typically provide three to five years for the lower interest rate before rising. This gives you plenty of time to make repairs and improvements to the home before putting it on the market again. Hopefully you will have done your homework and chosen an area that has a fairly healthy real estate market so you don't have to worry about the home being on the market for a long time. Remember, an empty house is not netting you any profit.
2) Balloon notes. This type of financing is something I would normally encourage anyone to think twice about. This allows you to live in the home (or work on the home) for a certain period of time, but at the end of the period there is a huge balloon payment. The bad news is that most people couldn't possibly afford to make the final payment and as a result lose the home they have been working so hard for over the last five years. If you are absolutely certain that you can sell, flip, rehab and sell for a profit, or whatever you are planning to do with this home then I would recommend considering this (and this is the only occasion I would even entertain the idea of a balloon note) but it is an option.
3) Another thing you may consider if you are going to live in your investment property at all is buying a fixer upper and trying to get an FHA 203 (k) loan. This loan allows you to add the cost of repairs onto the amount you are borrowing. It even escrows the funds to go to the contractors upon completion of the work, just to keep some folks honest. It's a good option if you have the credit worthiness and plan on living in the home you are investing in (even if only for a little while).
Hopefully, I have shed some light on the murky waters of investment property financing. It can be a rough river to navigate at times, but in the end, I feel it's a worthy venture.
In today's world of high-priced homes the cost of living is always on the rise. Conversely it would seem that wages are not pacing this cost. Buying a home has become more and more difficult as time goes on and to some it may seem that buying a home will never be a viable option. Well, perhaps it is time that these people looked into the possibility of a 100% financing option. These loans are tailor made to help people with good credit but little liquid cash to make a down payment, afford the home that they have always wanted. This kind of loan eliminates the need for a cash down payment by splitting the total loan into 2 different smaller loans. An 80/20 program is one of the most favored of these programs. It gives an 80% mortgage loan and a 20% home equity loan that covers all of the down payment and loan amount.
This kind of loan program is nice as it allows the borrower to avoid not only the down payment but the necessity of applying for a higher-rate jumbo loan. Typically with an 80/20 loan there are two monthly payments to be made. The primary loan payment is due at the beginning of the month while the home equity loan payment is due mid-month. There are also some pretty nice benefits to this kind of loan. One of these is tax savings. This occurs as payments had against the home equity loan may be tax deductible. So if you are involved in this kind of loan make sure you speak to your accountant to find out if you can claim these payments. This type of financing also has numerous choices that one can utilize to customize their loan with either FRM's or ARM's. Most financing options will have the choice of using a 15 or 30 year fixed rate mortgage or 5/1, 7/1 and 10/1 fixed period adjustable rate mortgages.
Whichever type of loan you are seeking, make sure that you explore all your options before you sign anything. Financing a home is something that will have a huge part in determining your financial future. Much of your wealth will be built up in the home and it's equity so it is well worth the time and effort involved in educating yourself on the loan process and on the options that you have at your disposal. Jumping into financing of any kind without studying what you are getting into is never a good idea. Know your options and shop around until you find the loan program that is ideal for you and your needs.
Both Gray Rollins & Lee Cameron are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Gray Rollins has sinced written about articles on various topics from Property Investment, Guide Guitar and insurance agents. Gray Rollins writes for InvestmentPropertyHelp.com. To learn more about and. Gray Rollins's top article generates over 368000 views. to your Favourites.
Lee Cameron has sinced written about articles on various topics from Property Investment, Install Flooring and Real Estate. Lee Cameron is a professional REALTOR? serving the market. Lee has consistently proven his talent and knowledge in the real estate business and. Lee Cameron's top article generates over 4400 views. to your Favourites.