Finally Understanding The Connection Between Loan Types and Investment Property Mortgage Rates

Loan Types

If you’re dealing with real estate, you’ll know how much money is exchanging hands every single month between your mortgage pricing, property upkeep, and interest rates. While the money you’ll make in the real estate game will be well worth the effort, you must understand how different types of property loans and transfers affect the mortgage rates involved with your investment properties. 

Understanding Your Options

When you’re finally ready to start taking advantage of the luxuries of real estate investing, you’ll need to first familiarize yourself with all the amazing loan and transfer options out there. Finding the right setup or loan type for you will help you not only gain ideal rental property mortgage rates but will help protect the future of your real estate investments as well: 

Home Equity Loans

Depending on the current status and quality of the property you’re looking to bankroll, your ability to get fantastic, nearly-interest-free home equity loans will rise. These loans use the equity you’ve built into a primary residence to help you gain extra funding and much lower investment property mortgage rates. These types of credit systems are often called a “home equity line of credit,” and are available through many financial institutions (especially larger, more property-centric financial institutions). 

Government-Backed Loans

There are tons of government-backed loan options available for those who’re looking to get into, or up their status, within the investment property game. Knowing where to look is the first step. Typically, you can use these government-backed loans to buy properties that offer multiple units for rent. If you’ve got solid credit and collateral, you may even unlock government-backed loans that can buy much larger properties. Understanding your goals, and desired investment property mortgage rate, before applying for government-backed loans will increase your chance of being approved immensely. 

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Conventional Mortgage Loans

If you’ve ever dealt with any type of mortgage before, you’ll likely be familiar with how conventional mortgage loans can help you maintain reasonable, low-interest financing for your investment properties. If you’re only looking to buy a property (or properties) that house five or fewer renters, you’ll want to heavily consider using a conventional mortgage loan setup. Not only are they less complex, but the interest rates involved with them are often safe and useful for small-scale property investors. 

Personal Loans

Although often excellent in terms of interest rates, personal loans can be hard to get your hands on. You’ll need to know someone with enough money to bankroll your investment, and who can do so without giving you absurd interest rates. For those with the proper connections and financial relationships, however, personal loans can end up being a godsend. The more you look into this option, the more you’ll realize that they are incredibly flexible (which is why they are so sought after compared to other loan types for those who have access). 

Hard Money Loans

Not unlike personal loans, hard money loans give you access to tons of cash with little-to-no interest rates bearing down upon you. That being said, because you’ll need to use personal financial collateral, and the currently chaotic nature of the Fed (and the economy as a whole), hard money loans are not always ideal for first-time real estate investors. However, house flippers and other fast-paced real estate hounds can find a ton of value inside a solid hard money loan setup. 

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Owner-Based Financing

Also known as seller financing in some circles, owner financing allows you to essentially become the property owner (while being bankrolled by that property’s previous owner). For those that want to get into the real estate game, and know others who own lucrative properties, setting up an owner-based financing deal can be a game changer. However, these setups are much rarer than the others we’ve discussed on this list. 

Assumable Mortgage Setups

If you’re dealing with USDA, FHA, or VA loans, you may have what’s known as an “assumable mortgage.” When using an assumable mortgage setup, you’ll be purchasing a home, and taking over its existing mortgage straight out. Due to this, the interest rates available with assumable mortgage setups are often not ideal. Which in turn has made these loan types less popular with experienced real estate investors. 

Cash-Out Refinance Setups

If you’re looking to ditch older properties and start fresh with better interest rates attached to new, more promising properties, you should look into what cash-out refinancing options are available to you. These are much more complex in how they are paid out and are sometimes seen as much riskier overall, but they have advantages that will impress some small-scale real estate investors.

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