One of the biggest obstacles to owning an investment property is financing. Funding the purchase is rarely an easy, straightforward process. Typically, there are wrinkles that need ironing out along the way, but knowing your options can help make the process a little easier. Here are five ways you can finance your first investment property.
1. Go Online for Financing
Many investors still insist on going old-school to get financing for their investments. Local banks and other brick and mortar establishments are fine, but online financing options are the going trend in this day and age. In fact, some experts argue that online lending offers better financing options with less hassle than traditional mortgage lending options. Check out sites like Lending Tree, Quicken Loans, LoanDepot and Rocket Mortgage to save yourself a lot of time and possible a lot of money.
2. Have a Large Down Payment
If you’re looking to invest in your first property but are having a little trouble qualifying, having a large down payment might help. Furthermore, if the rate your lender is giving you isn’t what you need it to be, a larger down payment will lower that rate.
If you can put down at least 25 percent, you’re looking at more favorable rates, and an even better probability that you’ll qualify for the loan. If you can come up with half as a down payment, it might attract a hard money lender with very favorable terms.
3. Seller Financing
For investors who have a hard time qualifying for financing, opting for seller financing might be the solution. With seller financing, the seller essentially becomes the lender, and the investor cuts the monthly mortgage payments directly to the seller instead of a bank.
When you choose seller financing, you must go to the seller with a clear-cut plan for payment. Not having everything drawn out and in writing will not inspire a seller to take you seriously as someone they can trust to make timely payments.
4. Invest as a Group
By yourself, you probably don’t have the funds to buy an investment property free and clear. If you can find a few other investors, however, you can go in together to buy the property and begin earning cash with it much quicker. This type of investment also eliminates the risk of foreclosure.
5. Ask about Portfolio Lending
Most lending institutions must adhere to strict rules and regulations when lending you money. This is because they aren’t actually using their own money to fund your loan. Instead, they borrow money from an outside source, or resell your loan to a government agency like Freddie Mac or Fannie Mae. Acquiring a conventional mortgage this way can be difficult for many investors.
Some banks and credit unions, however, have another option for financing that uses their own capital. Called portfolio lending, these institutions can set the loan terms themselves, which might mean more flexibility for you.
Most portfolio lenders do not advertise themselves as such, but you can find out which establishments in your area have this option available by networking with other investors. Alternately, you can Google the lenders in your area, give them each a call and simply ask if they offer portfolio lending.