Tag: credit score

Looking To Buy An Investment Property? Here Are 4 Ways To Finance It!

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Whether you’re looking to purchase a property to flip and put back on the market or to rent out to tenants, there are many ways to invest in real estate. One of the biggest questions investors might have is, “How will I finance this investment property?” Luckily, depending on your situation and finances, there are a few different ways to finance investment properties.

Let’s dive into four ways to finance your next investment property and see which method will work best for you!

Conventional Loan

Like traditional buyers, conventional loans are one of the most common ways to finance an investment property. Conventional loans conform to guidelines set by Fannie Mae or Freddie Mac, but the federal government does not back this loan, unlike with FHA or VA loans. 

Your credit score and credit history are considered to get approved for a conventional loan. The minimum credit score for a conventional loan is 620 or 740 if you want to receive a good interest rate. In addition, a 20% down payment of the home’s purchase price is required for conventional loans. 

Hard Money Loan

Professional individuals or companies lend money to investors specifically for real estate investing purposes. Hard money loans are easier to secure than conventional loans and are best if you’re looking to flip a property instead of buying or renting it. Hard money loans don’t look at credit scores or credit history; however, they take into account the property’s profitability. While hard money loans are one of the most common types for investment properties, they only last for 36 months and have higher interest rates, around 10% higher than conventional loans.

Private Money Loan

Private money loans are where you have people in your network or sphere of influence who have extra money and are looking for a good return on their investment. Private money loans have more flexible terms and are typically used by investors when banks have turned down. Loan terms and interest rates may differ, depending on your relationship with the person who loaned the money, but interest rates are usually lower, and the length of the loan is more flexible than with other loans.

Home Equity Loan

Home equity loans allow an investor to borrow against the equity of their primary home to use towards buying another home or investment property. These loans are essentially a second mortgage, but with a higher interest rate than your first mortgage.

Lenders will run a credit check and have an appraisal done on your primary property to determine creditworthiness and the market value of your home. In most cases, investors are able to borrow up to 80% of the home’s equity to use towards the purchase, repairs, and more. 

If you’re currently an investor or need help getting started, reach out to us at TALK Property Management. We would love to provide our expertise and answer any questions you might have. 

The 5 Ways Your Finances Change After Buying A House

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Being a homeowner or investor is more than just having equity and a place to call home. It changes your life physically, emotionally, and financially. Before buying a house, make sure you’re ready for these five financial changes. 

1. Your credit score will drop.

Once you get a mortgage, your credit score can drop 10 to 40 points, so don’t be alarmed. You’re taking on a lot of debt, so that’s why it falls. But the drop is temporary. One study from LendingTree discovered it takes about nine months for your credit score to recover. Once it improves, paying your mortgage on time each month will boost your score. 

2. You have more costs.

Compared to renting, your costs will seem like a lot, especially when there are costs that new homeowners forget or didn’t consider. Some of these costs include pest control, lawn maintenance, HVAC maintenance, taxes, and possible HOA dues. Utilities will also increase if your new home has more square footage than your last place, and you’ll need new insurance coverage. 

3. Savings is important.

Unexpected expenses like repairs and breakdowns are common homeowner problems and aren’t always budgeted for initially. This is why a savings or an emergency fund is crucial. Get ahead of the game by saving three to six months’ worth of expenses. This should include your mortgage payment, utilities, and other regular bills. 

4. Late payments don’t exist.

One late payment is a catastrophic avalanche of severe consequences. Most lenders have a two week grace period, but if it’s not paid by then, you’ll get charged a late fee. The late payment will also hurt your credit score. If you hit three months of being behind on a mortgage, the lender can foreclose your home.

To avoid this, create a monthly budget or take advantage of the several applications that can help you budget. You can also start automatic payments or monthly reminders, so you don’t miss a payment. If you do miss a payment, contact your lender immediately and ask for a goodwill gesture of removing the late payment from your credit report. You might be surprised by people’s kindness over a mistake. 

5. New tax benefits

As a homeowner, you’ll get a new tax deduction compared to when you were a renter. Your real estate taxes and mortgage interest could create tax savings for you later. Especially as a new homeowner, it’s essential to talk to a professional to see if you can maximize your deductions and hopefully get more cash.

 

If you’re ready for these five financial changes to your life, then contact me today to begin your home buying journey. We are here to help–(512) 721-1094 or dbrown@talkpropertymanagement.com.