Investment Property Financing – Finance Investment Properties With 100% Financing

Posted on: September 29, 2011

Categories: Buy

Author: lbuen

Real Estate Investors’ Big Secret – Investment Property Financing

With the down market, people keep saying that now is a good time to invest in real estate. However, newbie real estate investors could only scratch their heads as they do not have the money to buy their first property. Sure, the prices of real estate may have dropped insanely low but still the cash on hand just isn’t enough. Who says you have to take your payment from your own pocket? One of the biggest secrets how savvy real estate investors make money is by using other people’s money, through investment property financing.

5 Ways To Finance Investment Property

There are several ways you can obtain funding for your real estate deal provided you have a bang-up credit rating. Even if you don’t, there are still other creative ways to financially prop your real estate deals up. The following are some ways that may help you source your funding:

 Investment Property Financing   Finance Investment Properties With 100% Financing

Investment Property Financing - Finance Investment Properties With 100% FinancingImage via Wikipedia

Traditional Route

Borrowing from banks, credit unions and other lending companies has been the customary way for people to obtain funding for their property. However, after the mess with the sub-prime housing, these lenders have toughened up their criteria for lending, such as a credit score of 740 or better. They also require tons of paper work to show a good ratio between income and debts.  And if you do qualify, chances are, you will be asked for at least 10 percent down payment, although you may find some plans that may ask for less.

Subject-To Existing Financing

This method of financing, which savvy investors nickname “subject-to”, involves a buyer who is willing to acquire the home provided that the current loan is maintained and remains in the seller’s name, but the buyer makes the payments. The title will be transferred though. This is a great way to fund a deal, especially if the property is on the verge of foreclosure, because you do not have to make a down payment and it can be the quickest you can get. But it could also be the shortest since the seller will not feel at ease while the mortgage is still under his name for a prolonged period. So you have to set a plan to refinance in six months. Although quite risky for the seller, hard-pressed homeowners would agree to this in order to get rid of the house quick. When using this technique to fund your real estate deal, ensure that you fulfill your obligation to the deal and pay on time even if the mortgage is still under the seller’s name.

Seller Carry Back

If you chance upon a seller whose ownership of a property is free and clear of any encumbrance and agrees to receive a monthly payment for it, then you can use this form of owner financing. Typically, however, the seller will set a deadline for when the note must be fully paid, usually from one to five years. Just keep in mind that you have to refinance at some future time, which is just great since it is easier to get a refinance loan than a purchase loan.

The above examples are just some ways of obtaining financing for your real estate investment. As you get yourself deeper into the business, you will discover a lot more ways to fund a real estate deal, or you can even come up with one yourself.

Quick Tips On Financing Investment Properties

If you are considering obtaining financing for an investment property: (1) prepare a substantial down payment of at least 20 percent to secure traditional financing; (2) strive for a credit rating of at least 740 so that you can negotiate better terms and rates and avoid additional costs; (3) avoid large banks and opt for local ones or mortgage brokers, especially if you don’t have substantial amount for down payment, to avail of the latter’s flexibility.

No Cash For a Down Payment? Consider 100% Financing on Investment Properties

Another option you have in funding your real estate deal is by obtaining 100% financing for your investment property, meaning you do not have to make a down payment although you may have to pay for a higher interest rate. The typical financing would require you to pay 20% as down payment to get a loan-to-value ratio of 80 percent. Beyond this rate, you would be required to purchase a Private Mortgage Insurance (PMI) to secure the loan. To be clear, making these loans happen today requires large equity position in the property.

Some niche commercial lenders would be willing to provide 100% financing especially for investment properties that make sense since the property in question can be used to secure the mortgage. The usual structure of this type of loan is “80/20 piggyback,” which involves borrowing for the first and second mortgage from one lender or different lenders. Sticking to one lender though helps to avoid future confusion and complications. However, if you cannot find one sole lender for the two loans, consider seeking financing from other sources, such as another bank, through seller financing, from private money lenders with self-directed IRA’s, a lease option, among others. Smaller commercial lenders are more open to these creative 2nd loan options.

Despite the tightened criteria to qualify for a loan, it is still possible to obtain 100 % investment property financing if your real estate investment makes sense, and if you have a good credit rating and some creativity.  Seek out private money lenders through networking in your local real estate circle, find the niche commercial lenders in your area, or get creative.

 Investment Property Financing   Finance Investment Properties With 100% Financing
pixel Investment Property Financing   Finance Investment Properties With 100% Financing

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