When assessing your financial portfolio, it’s good to have an assortment of assets. One of the more common ways to diversify that portfolio is through real estate. This can seem like a daunting task due to the higher price tags often associated with owning property. There is some good news, though. Mortgage rates are at an all-time low. Additionally, there are several types of loans that exist to help make purchasing a new home more practical.
Home Equity Loan
If you are already a homeowner, you could consider a home equity loan, which is basically a second mortgage. These types of loans allow you to borrow against the equity you’ve built in your property for money. Typically, the amount is capped around 85% of the value of the home. You can still take out a home equity loan if you don’t own the real estate outright, but it would be an amount based on the percentage you’ve paid.
Home Equity Line of Credit (HELOC)
These are similar to the home equity loan in so far as you are borrowing off of your home. They differ in the fact that you aren’t actually taking a lump sum of money. The same percentages apply, however you are only borrowing money as you go.
VA Loan
For the people who have military service, the United States has set up a Veterans Affairs (VA) loan. If you are a veteran and qualify for this type of loan, there are some excellent perks including no down payment. Additionally, you are not required to carry mortgage insurance. There aren't usually many fees associated with a VA loan. The main issue with turning this into an investment property is that the government puts strict regulations on using the home are your residence. There are also minimum property requirements. If you are looking to live in the property, hoping to build equity, and don’t mind waiting a few years to make changes, this could be the right loan for you.
FHA Loan
If you are looking to purchase your first property and you don’t have a substantial sum of money saved up for your real estate investment, a Federal Housing Administration loan might be a good way to get into the real estate sector. Many loans can require upwards of 20% down. With an FHA loan, this amount drops to as little as 3.5%. Two things to consider when doing this type of loan would be that you often sign an intent to live in the property yourself for at least a year and most banks require you to carry mortgage insurance.
Bridge Loan
For those of you who are in real estate investment and already own a property, a bridge loan might be ideal for you. Real estate bridge loans are ideal for people who are in the process of selling one property while acquiring another. The lender will combine the interest rate and mortgage payment of your current property into a short-term loan with the new property to create the bridge loan. Once your current home sells, you will refinance the new home with a new mortgage. These loans can also be used for corporate real estate.
In addition to these loans, there are several others that exist. Do some evaluation of the type of loan you are interested in, your income ratio, and if you have any collateral for another investment. Once you have an idea of the type of loan, you want to search for a mortgage lender, but that’s too big to cover here.
Depending on the kind of loan you are looking for will help dictate what you are capable of spending. Review your finances, consider how you intend to use the loan, and look for the right lender. Ultimately, the right loan will present itself.
