What Are The Different Types of Mortgage Loans For Real Estate Investment?
Many people who are new to real estate investment are surprised to learn that there are several different types of mortgage loans available for real estate investment. By gaining a better understanding of the types of loans that are available, you can better determine which type is right for you and your investment needs. To that end, here is a look at the four most common categories of loans that are available to real estate investors.
Conventional Mortgage Loans
Convention mortgage loans are the most popular types of loans used by real estate investors. The biggest difference between a conventional loan and other loan types is that you will be required to make a down payment when purchasing the property. Even government-sponsored conventional loans, such as FHA loans, require some sort of down payment to be made as a part of the terms of the agreement. The only exception would be the VA mortgage loan, which does not require a down payment at all. It is also important to note that FHA loans can only be used in special circumstances when it comes to investment property. Namely, an FHA loan can be used to refinance an FHA loan, even if you no longer occupy the property, or it can be used to purchase a multi-family dwelling so long as you occupy one of the units.
Portfolio Mortgage Loans
In addition to conventional mortgage loans, it is possible to also obtain a portfolio mortgage loan. A portfolio mortgage loan can be helpful if you are having difficulty with qualify for a conventional mortgage loan due to poor credit or undocumented income. While there are several different types of loan options within this category, the Option Arm is the most commonly used. This type of loan offers a great deal of flexibility in terms of payment options and qualifying for the loan.
Portfolio lenders operate in ways that are similar to conventional lenders, but they typically have different guidelines. For example, most of the loans are underwritten manually. In addition, most portfolio lenders hold their portfolio loans rather than selling them in the secondary market. Portfolio lenders also do not rely on Fannie Mae or Freddie Mac to approve their loans.
Private Mortgage Loans
Private mortgage loans may also be used to finance a real estate investment property, though these types of loans typically have interest rates that are much higher than conventional mortgage loans. Private mortgages, also referred to as Hard Money Loans, may also include more upfront costs than conventional loans. On the other hand, they are often considered to be safer because they are secured by real property. Private mortgage loans also offer more flexibility, such as having the option to roll closing costs and rehab costs into the overall amount of the loan. Private loans are also a good option for those who are looking to flip the property quickly and, therefore, want to obtain a short-term loan.