If you want to build wealth and make a ton of money quickly, investing in real estate can be a good option. However, investing in a real estate property requires thousands of dollars, and unfortunately, there are very few first-time real estate investors that have this much money.
This article is for you if you’re a first-time real estate investor and want to acquire an investment property loan.
Three Types of Investment Property Loans
1. Hard Money Loan
A hard money investment loan is a short-time loan with high mortgage rates. This hard money loan is usually issued by private entities or investors, and they use your property and assets as collateral.
One of the biggest benefits of the hard money loan is that it doesn’t require any credit score. Besides, you can get a hard money loan quickly. You won’t have to wait months to buy the investment property loan. If you’re lucky, you can get the loan in a day.
Again, a hard money loan is easy to get even when you have credit issues. However, as I mentioned above, a hard money loan is very costly as it has high mortgage rates.
Hard money loans are usually used to beat the competition out of the market by acquiring financing quickly or for flipping real estate.
2. FHA or Federal Housing Authority Loan
The FHA or Federal Housing Authority loan is issued by the US government, and if you’re a first-time real estate investor, an FHA loan can be a great way to enter into the real estate market. However, when you take the FHA loan, you’ll have to live in the property for at least one year.
If you’re a first-time real estate investor, you can buy a fourplex house; keep one unit for yourself and rent the rest of the rooms. That’s how you can fulfill the terms and conditions of the FHA loan.
However, not everyone is eligible for the Federal Housing Authority loan. But you can use this as an opportunity to enter the real estate market. For example, as the down payment of the FHA loan is very low, in the beginning, most of the first-time real estate investors buy a house with the FHA loan. After that, they improve their credit score and save money. With that money and good credit score, they apply for other loans such as conventional financing and buy their next property
3. Private Money Loan
Unlike other loan types, a private loan is issued by relatives, friends, or wealthy people. Generally, it’s a short-time loan with low to no interest. Most of the time, lenders don’t care about the interest as long as you return the money. However, one of the biggest problems with private money loans is that it can affect your relationship. That’s why before taking the private loan, you should discuss all the terms and conditions very clearly with the lender. This will prevent future conflicts.0