Mortgage Financing for Real Estate Investors

Real estate investment has helped investors accumulate wealth for many years. Even though you may be willing to get involved with investing in real estate, finding a loan to help you get started may be difficult. Exploring all of your options and finding out the loan criteria before you get started can be helpful.

Function

• The purpose of financing for real estate investors is to get enough money to buy a piece of property. By using mortgage financing, you can essentially buy an investment without putting up that much of your own money. For example, if you put 10 percent down, the lender takes on 90 percent of the risk in this transaction, but you can benefit from the rental income and value appreciation.

Requirements

• If you get a traditional loan from a bank, you will generally have to have a high credit score of at least 680. With real estate investment loans, you also have to put up a larger down payment than you would when buying your own home. Most lenders require at least 20 percent down on real estate investment property loans. The interest rates will also be one or two percent higher than on regular residential mortgages.

Seller Financing

• Seller financing is an option that many investors do not consider, but it can really work in your favor. With this type of financing, the seller of the property actually finances the purchase for you. You will give the seller a down payment on the purchase and then begin to make monthly payments. With this type of financing, you do not have to have good credit, and down payment requirements may be smaller.

Cash Flow

• When getting involved with real estate investing, it is important to look at the cash flow of each deal separately. Look at the amount of money that you could bring in from renting the property. Then look at how much your mortgage payment will be and how much you will pay in maintenance costs. If you have a positive cash flow right away, the deal can be very attractive. If you have a large negative cash flow, you may want to look for another deal.

Considerations

• If you are unable to obtain real estate financing through any of the conventional methods, you may need to get creative to find a way to purchase the property. For example, you could use a home-equity loan on your own house to come up with the money to buy a property. You could also use a lease option to secure a property until you are able to come up with the money to buy it.