Tightened credit qualification requirements made it challenging for some investors to get financing in 2015. Fortunately, there are some creative tactics investors like you can use to increase your chances of getting a loan. Here are the top five unconventional methods of securing real estate investment financing.
Save Up a Significant Down Payment:
Traditional financing requires a 20% down payment, so anything above that can significantly increase your chances of securing investment property financing. The higher your down payment, the better your interest rate as well. If you don’t have the cash, find out if you can borrow from one of your own retirement accounts without penalty or seek a loan from a family member or friend.
Look for Big Bank Alternatives:
Smaller local banks are often much more flexible than larger nationwide financial institutions. Private lenders can also be more willing to negotiate than a bank. Their loan interest rates may be higher, but they’re almost always more flexible on your down payment amount and other terms.
Consider Creative Loan Types:
Some of the more unconventional loan types might be easier to acquire and be a better fit than traditional lending products. An interest-only loan might be a good option if you are looking to buy, renovate and quickly sell a property. With this loan type, you agree to make interest-only payments for a period of time; typically five to seven years. This means you’ll have more cash available for renovations because you’ll have a lower monthly payment.
Research Seller Carry-Back Options:
In this circumstance, there are no banks involved. You simply borrow money from the homeowner and pay them back over time. In order to finalize the sale, you have to exchange a deed of trust and a promissory note for the property purchase price. In some cases, you’ll get the deed at closing and in others, the seller retains the deed until the property has been paid in full.
Pursue Short Sales:
When a seller is facing foreclosure, they may market their property for less than the balance owed. With a short sale, the lien-holder agrees to the lower home valuation as full payment. Buying short sales requires some extra steps and takes longer than a traditional sale, but it can result in a dramatically discounted price and immediate equity in the property.
Securing investment property financing has its share of hurdles, but with a little creativity, the options are endless.
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