Do you want to expand your real estate portfolio? Would you like to focus on rental real estate? If so, you will find that going through a hard money lender is the best way to grow your holdings. By seeking assistance from a hard money lending source, you will enjoy more flexibility and a quicker process. After the loan closes, you can receive your funds in as little as 48 hours.
To qualify for a rental property loan, you should have a credit score of at least 620. If your score is lower, you need work on increasing the rating. Make sure you make your credit payments on time and try to pay off some loans and charges so you have fewer funds tied up into credit.
Interest for Rental Property Loans
It always helps to maintain a higher credit rating, as you will receive much better loan rates. The interest for rental property loans from hard lending sources ranges between 4.75% and 8%. The lower rates will allow you to build your rental portfolio more easily.
What you pay in interest will also be based on your loan-to-value ratio, or LVR. Hard money lenders accept LVRs of 80%. Because an LVR is based on what you want to borrow, the rate is reduced when you place more money down. Therefore, a lower LVR reduces the amount a lender charges in interest.
This may lead you to wonder how the LVR is figured.
Let’s say you want to borrow $450,000 for a rental property. However, the property’s value is assessed at $600,000. In this case you would calculate the LVR by dividing the amount you wish to borrow ($450,000) by the property’s value ($600,000). After getting this answer, you would multiply the amount by 100. This represents the LVR, which, in this example, is 75%.
Loan Terms for Hard Money Rental Property Financing
You will find that rental property financing through a hard lender offers flexible terms that conveniently meet your financial requirements.
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Types of Loans Used for Funding
You can find funding options that cover one to four family dwellings. Choose from:
- Adjustable rate mortgages (ARMs)
- Interest only loans (with a balloon payment at the end or higher principal and interest payments at a future date)
- Long-term fixed amortization loans of 30 years
You can apply for a loan up to $3 million or a portfolio loan up to $6.25 million.
What and how you choose for terms will depend on how you plan to rent the property and your monthly rental income. If you plan to sell your rental property after 5 or 7 years, you may want to choose an adjustable rate mortgage (ARM) with a low fixed interest rate for 5 years or 7 years. After this time, the interest fluctuates.
Also read : Tips to Reduce your Home Loan EMI
Qualifications for Funding
As mentioned, to qualify for a rental property loan, you need to have a credit score of at least 620. You should be in the habit of paying your bills on time and make sure any late payments or negative marks have dropped off your credit report. If anything is inaccurate on your report, contact the credit bureaus to have it removed.
Work with a Lender that Specializes in Rental Property Financing
Hard money lending offers real estate investors an opportunity to acquire more rental properties. Because they offer more flexible terms, hard money lenders make it much easier to buy real estate for both first-time and seasoned borrowers.