Financing with Conventional Lenders
Many potential landlords will purchase a rental property that needs some work. A traditional lender will want to let the landlord borrow based on the worth of the property. The two figures might not always add up for the lender, which is why they are not always the best place to get a loan. You might have to secure financing in another way for your next rental property.
Home Equity Loan
When you have property already, you can use that as the security for a loan. You might also use it for a home equity line of credit or HELOC, which works much like a credit card. The lender will give you a line of credit for a certain amount of money. You can borrow against that to fund the purchase of a new property. You’re billed monthly like you would be for a credit card. Buyers should be aware that the minimum payment is often for the interest alone, which won’t pay down the principle amount borrowed.
The home equity loan is often the same as a mortgage from a traditional lender. The lender gives you the funds in advance, and you purchase the new property. Each month you’ll be required to make payments, which are usually the principle plus the interest. This will be paid over a 15 or 20 year period like a traditional mortgage.
The lender will use an existing property for security on the second home. It’s much like the process to secure a mortgage, so the process can take up to 45 days to complete. For those who choose this method, you have to be willing to take a risk on your personal property to gain rental property. You can borrow up to 80 percent of the value of your existing residence and refinance the existing mortgage, which creates a new one. This will give you the difference as a “cash-out” to be applied to the new property.
This can also be done with other investment or rental properties you have, but there are rules to follow. The rental property can’t have been purchased within the last 6 months. The number of units in the property will influence the cash-out amount too. While you might have a property management company in American Canyon property management to watch your large rental with multiple units, that won’t help you with a cash-out on a new rental.
You don’t need to head to a local bank to get a traditional mortgage or financing, you might be able to get the funding from friends or family. These people are the ones who are likely to say yes to your requests for money. They know and love you, which brings pluses and minuses to the transaction. Loved ones don’t always understand the risks, so you’ll have to explain it to them.
There are investors who provide their own funds for borrowing. They are willing to take a chance based on the high-interest rate they’ll receive in return. Some people are deterred by the high-interest rates, but you might decide that it’s worth the rates to have a property immediately.
The process is much faster than traditional lenders too. Private lenders do have some rules, and you’ll need to make sure you meet the requirements of the individual investor, but it’s a good option for some.
While the initial method of lending might vary depending on your circumstances at the time, you can always refinance through a traditional lender at a later date. You might do this after the property is repaired, but before your property managers in American Canyon find you tenants in the unit. This will allow you to have a fixed monthly payment that will help the property manager with rent calculations.
The method you choose for financing your rental property will depend on whether you have other properties already, and if you know people who will provide funds. You should always research your options before making a choice, so you’re fully informed and making a smart decision.