where an investor wants to purchase a property?
these local programs to see if you qualify for assistance that will ease the cash burden of financing your investment property.
estimates from potential lenders. Thinking about your financial goals holistically will help you avoid wading through estimates for loans that may not suit your needs. An experienced real estate agent can also weigh in on the loan process. Your agent may not be a financial expert, but he or she may be able to recommend a lender or offer guidance on what type of loan could suit your needs. 5. COMPARE LOAN ESTIMATES The final step in the loan evaluation process is to compare estimates you’ve received online or from lending agents. These estimates aren’t final offers, but they are tools you can use to evaluate loan terms side by side before making a decision. Read reviews of lending institutions as you decide on a type of loan and lender. Third-party reviews can help you judge the lender’s customer service approach and alert you of any operational red flags. Finally, consider your desired working relationship with your lender. If you want a more traditional borrowing experience that takes more time to close, a conventional lender may be your best option. If you want a faster flow of cash, private lenders may be a better fit. •
• Loan amount . How much will an investor be able to borrow? • Loan type. Most real estate investors use conventional loans, but some consider Federal Housing Administration (FHA) loans because of their low down-payment options. • Loan term. How long will an investor have to pay back the loan? • Interest rate. Is the rate fixed or variable? Experienced real estate investors should also consider the specific costs they need the loan to cover. For example, a real estate investor who wants to buy an apartment building may be able to take out a different type of loan for a larger amount. 2. DETERMINE WHETHER YOU QUALIFY FOR SPECIAL PROGRAMS Special loan programs can help you save on upfront costs for your investment property and make it more lucrative in the long run. These loan programs
3. EXAMINE YOUR PERSONAL FINANCES
Your personal finances will deter - mine your loan eligibility and what kind of investment property you can afford. Consider the following factors before applying for a loan to expand your real estate investment portfolio: • Your household income • Your debt-to-income ratio • Your on-hand cash for a down payment, closing costs, and other expenses • Your credit score What other expenses are you expecting for this investment? Will you need mortgage insurance? Will you pay full commission to your real estate agent? Evaluating your personal finances will make it easier to narrow down your search for a loan provider once you’ve chosen a property to invest in. 4. NARROW YOUR LIST OF POTENTIAL LOAN VENDORS When you’re ready to start evaluating lenders, consider how your personal finances measure up to the types of loans and interest rates offered. Some lenders will only offer specific loans, and others won’t accept borrowers without a certain amount of cash or a certain credit score. If you have cash on hand but a low credit score, start by looking at FHA loan providers who lend to borrowers building credit. Consider your short- and long- term financial plans before gathering
can take the form of credits or reduced interest rates.
The federal government offers special loan programs through the office of Veterans Affairs for U.S. military veterans, active duty service members, and surviving spouses. The U.S. Department of Agriculture also offers special programs for low- to middle-income borrowers located in rural areas. Many states also offer loan assistance programs for first-time homebuyers and other incentives to encourage investment. Research
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping home- buyers, sellers, and investors make
smarter financial decisions. Babich is a licensed real estate agent in the state of Missouri. His research and insights have been featured on Big- gerPockets, Inman, the Los Angeles Times, and other online and media outlets. Babich earned a bachelor’s degree in political science, with honors, from Stanford University.
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