Real Estate Funding: 10 Tips for Getting a Real Estate Loan

Did you know that in 2020, 842,000 homes were sold in the United States? Whether you’re looking to flip homes or buy your next rental property, seeing the dollar amounts can be intimidating.

You might wonder where you should turn to have enough money. The good news is that there’s hope. Read this guide on the top tips for getting real estate funding today!

1. Calculate Total Costs

First, calculate repair costs. Renovations could wind up costing much more than you realize. Contractors could offer you a quote that often changes depending on the situation.

When you learn how to find private lenders, give them an accurate estimate. Stick to minor cosmetic repairs that won’t cost as much when you flip homes. You’ll want to also think about how much you’re comfortable with going over budget.

You’ll also need to think about the costs of a rental property when it’s undergoing repairs and sitting vacant. Costs could include insurance, utilities, taxes, the mortgage, and permits.

Choose contractors who have had a background check done and have positive reviews. This could wind up saving you more in the long run.

You’ll also need to think about ongoing expenses such as maintenance, vacancy rate, property taxes, etc. It could also include legal costs, bookkeeping, and accounting.

2. Check Your Credit

To qualify for a real estate investment fund, you’ll need to have good credit. Check your credit score since the lower your score, the higher the interest rate.

Pay off debt, pay your bills on time, and practice other methods to increase your credit score. A credit audit will give you a good idea. While bad credit won’t automatically disqualify you, it does make it less likely that you’ll be approved.

Check for any false information that you can dispute. If you find false information, contact credit bureaus and let them know what’s inaccurate.

3. Have Your Down Payment

When you’d like to invest in real estate, you’ll still need a down payment. This will depend on financing, credit, and other factors.

Have a steady job and paycheck to qualify. Avoid opening any lines of credit since this could deny you in the approval process. When you apply, include your income history with your W2s.

Your income information should include your bank statements, tax returns, pay stubs, work contracts, and other similar documentation.

4. Be Transparent

Include all of the financials for your company, your partners, and your personal financials. Have a plan in place for the project.

Let the lender know about your past projects and how much experience you have. Show them closing docs to verify the numbers.

If you’re a new investor, be open to smaller loans. As you build up your experience, you could increase the loans over time.

5. Compare Lenders

Each lender will have a different interest rate and loans available. Ask your friends and family for recommendations and do your own research online. As an investor, you’ll still be obtaining a real estate loan, similar to home buyers.

6. Get Pre-Approved

You don’t want to get pre-qualified; you want to get pre-approved. Pre-qualification doesn’t access your financial information.

The pre-approval process will allow lenders to review your finances. Pre-approval will offer you a more realistic look at your loan amount.

Consider offering any property that you own as collateral. If there’s anything in your profile that hurts your case for obtaining a loan, this could help.

7. Understand Loan Terms

There are commercial, multifamily, and residential loans. Understanding the difference between them will be important to the lender.

Investment property loans tend to cost less than commercial and multifamily loans.

If you’re looking to buy a 1-4 family-sized dwelling, then you don’t need a commercial loan. For properties that are meant for 5 families or more, you’ll need a multifamily loan.

Industrial buildings, strip centers, and office buildings would need commercial loans.

8. Real Estate Crowdfunding

An alternative to real estate loans is crowdfunding. This is when you ask the public for funds to begin.

A large number of people will contribute to the pool. These can include commercial or residential holdings.

There’s low start-up capital for private investors. It also allows them to diversify their portfolio.

The money is often collected online through crowdfunding sites. It’s a risky venture for lenders, though.

9. Private Money

This is when investors lend money to other investors. Private money loans are paid back with interest.

Many like this option since the approval timeline is much faster. You’re more likely to receive approval with this method.

10. Investment Loans

You’ll need to meet certain requirements to qualify for these. They include 203k, USDA, VA, and other loans. For a VA loan, you’ll need to have been in the military or are currently in.

Real estate bridge loans are available for gap funding. They can be secured through an existing property.

Before the previous property sells, you can secure it as collateral. They tend to be more expensive than other loans. You’ll still need to pay for the current loan or mortgage on top of the bridge loan.

A Guide on Real Estate Funding

After exploring this guide, you should have a better idea of real estate funding and your various options. Speak with a lender to see what you qualify for and have your financial information handy.

Would you like to read more informative and educational real estate content? Be sure to check out our other articles today! From informative guides to do-it-yourself how-tos, we have you covered.

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