interest rates than conventional loans. The basic default criteria for a VA loan include a good credit score (although there is no minimum score requirement), a debt-to-income ratio of no more than 41%, and a certificate of eligibility from the VA. USDA loans. The U.S. Department of Agriculture guarantees USDA loans for borrowers in rural areas. These loans require no down payment and have lower interest rates than conventional loans. The basic default criteria for a USDA loan include a credit score of at least 640, a debt-to-income ratio of no more than 41%, and a property located in a qualifying rural area. Home equity loans. Home equity loans are secured loans that allow homeowners to borrow against the equity in their homes. Equity is the difference between the home’s current value minus the remaining mortgage or any liens on the prop - erty. Home equity loans are typically used for significant expenses like home renovations, medical bills, or debt consolidation. These loans have fixed interest rates and are suitable for homeowners who need a large amount of money upfront. To be eligible for a home equity loan, homeowners must have a certain amount of equity in their property. Lenders usually require a minimum of 15-20% equity in the home. Additionally, lenders will consider the homeowner’s credit score, income, and debt-to- income ratio to determine their eligibility for a home equity loan. Home equity lines of credit (HELOCs). HELOCs are similar to home equity loans but are a revolving line of credit. These loans have variable interest rates and are suitable
because it involves the purchase of undeveloped land, commonly held for appreciation purposes.
FINANCING OPTIONS Let’s examine the main financing options available for the three property types and the common criteria used to evaluate investors. Conventional loans. Conventional loans are the most popular type of mortgage loan. These loans are not guaranteed or insured by the government. The interest rate for conventional loans depends on the borrower’s credit score and debt-to- income ratio. The basic default cri - teria for a conventional loan include a good credit score (typically 620 or higher), a low debt-to-income ratio, and a down payment of at least 3%. Federal Housing Administration (FHA) loans. These loans are insured by the FHA and are suitable for low-to-moderate-income borrowers. The loans require a down payment as low as 3.5% and have more lenient credit scores and debt-to-income ratio requirements than conventional loans. FHA loans are designed to help first-time homebuyers, those with lower credit scores, or those needing to make smaller down payments to buy a home. The basic default criteria for an FHA loan include a credit score of at least 500 (although a higher score is recommended), a debt-to-income ratio of no more than 43%, and a down payment of at least 3.5%. Veteran Affairs (VA) loans. VA loans are guaranteed by the Department of Veterans Affairs and are available to eligible veterans, active-duty military personnel, and surviving spouses. These loans require no down payment and have lower
THE MAIN PROPERTY TYPES There are three main real estate investment property types: 1. R esidential properties. These include single-family homes, condominiums, townhouses, and multifamily homes with up to four units. 2. C ommercial properties . These include office buildings, retail spaces, industrial properties, and multifamily homes with five or more units. 3. L and acquisition . This category differs from residential and commercial property financing
INVESTOR REVIEW :: 5
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