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Mortgage and Finance : Commercial Loans Last Updated: May 14th, 2012 - 22:24:01

Loans For Investment Property: Choosing The Appropriate Loans
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Loans For Investment Property ¨C Choosing The Appropriate Loans

An investment property loan finances your investment in real estate property. There are many alternative ways of financing for investment property. Traditionally, you would arrange your loans for investment property through savings banks, commercial banks, savings and loan associations, and credit unions, among others. Other sources through which you can arrange your financing for investment property are: mortgage bankers, mortgage trusts, insurance companies, and investment trusts. In addition, you can also seek such loans from finance lenders, pension funds, mortgage loan pools that are securitized, and from private individuals, too. 

Types Of Loans For Investment Property

A look at some of the types of investment property loans:

  •  Lower Income Investors     
  • There are many real estate equity loan companies that offer loans to people from lower income groups, minorities, and retirees. These are sub prime real estate loans. There are certain positives and negatives to such loans. At a later stage, there may be a sharp increase in the rate of interest, or the cost of the loans. However, for those people with a bad credit rating who wish to avail financing for investment property, this is the best alternative. 
  • Large Income Investors 
  • Investors with large incomes, or those with a very large tenant base, or those who are with substantial institutions, have many alternatives available only for them, when looking for loans for investment property. Stocks or bonds, sale-leaseback, exchange, and long-term leases are some of the alternatives available to them. In addition, the other alternatives are: Syndicate equity financing, commercial loans, and security agreements, among others. The real estate investor can avail of these alternative investment property loans without the need for mortgage financing. 
  • Short-term Loans 
  • There is one particular short-term loan that is a great alternative for those with a good credit history. This short-term investment property loan is known as the ¡®bridge real estate loan.¡¯ The greatest advantage this type of loan offers is that you do not require to repay the principal amount until you pay off the loan. If you are looking for loans for investment property to meet the development of your new property, bridge real estate loans are the ones for you, as such an investment property loan is usually taken for repositioning and renovating of your existing property. Ensure that the structure and pricing of this type of loan suits your risk profile, before you decide on it. 
  •  Equity Loans
  • When compared to other types of financing for investment property, equity loan schemes offer lower interest rates. Such loans are a great alternative to explore when you need an investment property loan at lower interests. Whether you need a loan for property investment, home improvement, for debt consolidation, or even to finance your car purchase, an equity loan can be used for a variety of purposes. One great advantage of equity loans is that they are tax deductible. Equity loans are offered at even 100% the value of your property. You need to be extra cautious when opting for an equity investment loan. It is always better to opt for a fixed rate equity loan, as compared to the one with fluctuating rate of interest. This will ensure that the fixed amount you have to dish out every month will not affect your budget planning and other financial commitments. Before deciding on this option, check out the down payment you may be required to pay, as well as the closing costs and other fees that are involved. Ensure that this loan suits your requirements. 
  •  Government Investment Property Loans
  • This is another alternative you can explore. The government investment property loan does not require any specific income limit. In addition, you are not required to make any down payments. These are the two major advantages. If in the course of the life of the loan, you wish to prepay the full amount, you do not have to pay any additional charges, such as pre-payment penalties. In addition, you are not required to pay any monthly mortgage insurance premium. 

There are variety of alternatives you can explore when it comes to shopping for loans for investment property. Different alternatives are suitable for different purposes for which you need the loan, each with its own positives and negatives. Ensure that you understand all the terms and conditions, especially the small print. Check and counter check for any hidden costs, or other costs, as this may make the loan not viable, financially. Be sure what you are getting yourself into before making your final decision.


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