Buying a House? Condo? Here's how to finance the home!
So, you've decided that real estate investing is for you. Or, maybe, you just want to find ways to finance a home for yourself. This article will cover different ways to finance your dream home or investment property.
With the current housing market the way it is, now is the best time to get into real estate, whether that means buying your first house for personal use, or getting into real estate investments and rental properties. The current interest rates for mortgages are at it's lowest, so by getting a mortgage locked-in now, you'll be reaping the benefits of the lowest mortgage rates for the next 15 or 30 years, depending on your mortgage loan's life. That's not even mentioning all the other benefits of operating as a real estate investment business.
So, what are the tips for financing rental properties, now that I've made it clear it's a great time to buy? First thing is to save money up and have a sizable downpayment! Mortgage insurance, or PMI (Private Mortgage Insurance), usually does not cover investment properties, so having about 20% toward the price of the property, minimum, is a must. Not to mention having capital for other unexpected expenses and business operations. If you can afford to but 25% down, you may even get better interest rates, so shop around with different lenders.
Next, ensure you have a good credit score, such as above 740. Anything lower, you may have to pay "points," basically, extra money down at closing, to get the same interest rates as if you had good credit.
These days, alot of lenders and banks are requiring you to have "reserves," which is basically money in the bank so that if your tenant default or if the property is empty, you have money yourself to pay the bank, which, at the end of the day, is their biggest concern. Everyone wants to get paid, understandibly.
Another tip is going with small local lenders and banks. Alot of times, these places will be more flexible with you than big national banks and lenders.
These days, one option you can also consider is asking for seller financing. Ensure you lay out the terms and have it in a contract. A motivated seller may be up for this option, and so it can help both parties out.
Another, "out of the box" method for funding your purchase is to ask close friends and family members. Anyone can "give away" up to 13,000 a year, worth of money or current market value, at the time of giving the gift and not have to be charged a gift tax. The reciever does not pay any taxes or penalties either. Family members may be a good option, because they (usually) don't charge interest! TIP: if you form a business corporation and invest in properties, the mortgage interest is tax deductible, basically giving you a zero-percent interest mortgage that you're just paying principal for, once you deduct the mortgage interest when you file taxes.