For many people, real estate can provide financial freedom for a lifetime. Owning property is a wise investment, but not everyone has the money needed to make this a reality. Student debt, a mortgage of your own and a vehicle loan is enough to prevent you from getting started. If you’re looking to save up some money quickly to take care of the 20 percent down payment, let’s take a look at some methods you can use.
Think About How Much You Can Save Monthly
You’ll need to assess where your money is currently going. You can use a budgeting app to see where there are areas that can be improved upon. You may be able to reduce your monthly spending by eating out less, choosing a different cell plan, or budgeting on groceries. Fifty percent of your take-home pay should go towards your necessities. Another thirty percent goes towards non-necessities but things that you want. The last twenty percent should be for savings. A lot of people choose not to keep a paper trail of what they’re spending. It’s ideal to hold yourself accountable with your spending.
Figure Out Your Budget
You should determine what type of property you can actually invest in. You will need to run some numbers that reflect the property you’re buying, attorney fees, closing costs and your repair budget for once you’ve closed. You can tweak these numbers to make your investment dream a reality. You might have to buy something a little smaller than what you originally set out for, or you can wait a little longer to get something closer to what you want.
It’s important to keep in mind that you’ll have to come up with twenty percent of the property price as a down payment. This is because investment properties don’t carry mortgage insurance typically. The more you put down, the lower your payments are going to be. You can also look into using a home equity line of credit on your own home to use towards a down payment. You’ll need to be strategic with your planning, but there’s plenty of ways to quickly save for an investment property.
When one has a low credit score or does not have enough money to pay for a downpayment, banks will not be willing to lend money. For an individual in real estate looking for finances, there is a need for creativity in such a broke situation. Luckily, there are these modes of financing property.
Private money refers to a loan a person can get from a family member, co-worker, friend, neighbor, or anyone else they have a relationship. The relationship between these two parties is built on trust, and as such, a person seeking funding will have an easier time negotiating flexible terms. As good as it is, the agreement should be finalized carefully to avoid nasty consequences should the business fail.
This mode is a strategy used to seek funding from public forums. An investor creates an account in such platforms and appeals to the public to fund their businesses. Some sites for real estate include Feather the Nest and Hatch My House.
Also called seller financing, this is an arrangement made between the seller and buyer, whereas the seller gives a loan to a buyer who can’t afford one from the bank. The buyer then pays the loan with interest agreed upon over the agreed time.
This option allows buyers to apply for a new home loan for more than they owe on another property they own. They thus refinance their mortgage, and at the same time, get extra money to finance a new property.
Home equity loan
This loan applies when an individual has another property they can use as collateral. Many lenders offer as much as 90% of the property’s value, and the money can finance another property.
Conventional fixed-rate Loans
When a person is looking to finance a property in good condition, they can apply for a loan in which the said property is used as collateral for the loan. It usually comes with lower monthly payments, higher down payment, and a fixed interest rate.
This is a loan offered to an individual from a private entity to invest in real estate. They are short term loans with a high-interest rate. The lender does not conform to stringent measures such as income or credit scores. It is, however, a risky move if one is not sure of the property’s success.
Refinancing of a rental property is the most honorable thing for a person to engage in at this time. He or she can seek to refinance a rental property as an investment since it increases the cash flow and lowers the payments. The concerned party will thus establish low rates, and a constant flow of income is guaranteed.
Advantages of Refinancing Property
Lower Interest Rates
The interest rate that one is likely to face in the real estate business is high. The high rates charged can be attributed to the risk present in the real estate business. Lenders will charge highly to mitigate the risk of defaulting that can be present in the business. Refinancing seeks to lower the rates incurred when investing in real estate.
Change of Mortgage Term
Refinancing provides one with an opportunity to renegotiate the mortgage terms. Thus, enabling one to secure an agreement that will allow for lesser interests accruing and shorter payment durations. As an investor, it is easier to enter into an agreement that pays a fixed amount monthly other than the one whose rates change every month.
Refinancing allows a person to own the property when the mortgage balance is zero. Lender will be lien to the property until the mortgage is paid back. The lien will be entitled to seize property following failure to make the payments borrowed on the stipulated time.
The Right Time to Refinance
The right time to seek refinancing is when the interest rates are low, and the value of properties is high. During this time, the refinancing party is at liberty to borrow larger amounts at lower interest rates.
Obstacles to Refinancing
- Low credit score and unclear sources of finances.
- How to Avoid Issues and Delays with Refinancing
- Prepare and organize necessary documents to avoid issues and delays.
- Places to Seek Refinancing
Refinancing entities include; banks, credit unions, private lenders, hard money lenders, among many other sources.
Refinancing is the best option for lowering the rates changed in the real estate business. Other advantages of engaging in refinancing entail changing the mortgage terms to one’s convenience and increasing the cash out equity options. The best time to seek refinancing is when the interest rate is low, and the property value is high. To avoid delays in refinancing, the preparation of necessary documents is key.
When it comes to financing real estate, there are a variety of channels. Some are very standard and well known, while others are hidden gems. Some factors to consider when selecting an avenue are the timeframe, the amount, and down payment. To get ready, set up contacts with as many financial systems. When a viable piece comes up, run it past several outlets to compare interest rates, fees, and terms.
This type of financing is something that big-box banks and institutional lenders offer. The loan officer must adhere to standard protocol. In the event some data does not fit into the box, they may not approve the deal. Some individuals choose this form because it is straightforward and comfortable.
Some hybrids of traditional real estate loans are FHA, USDA, and VA. These are government loans, and each one requires the applicant or property to meet specific criteria. Borrowers will pay mortgage insurance on an FHA loan. USDA loans are restricted to certain rural areas, and to qualify for the VA product, one must be a veteran or a veteran’s spouse. Both active and retired military personnel can apply. These loan products have different down payment requirements, which run from nothing down for the VA loan to 20% or more.
Private money is an agreement between two parties that does not need any outside confirmation. Private money can come from friends or family members or outside groups. Peer-to-peer platforms are popping up online. Through these portals, people can put in their credentials, the type of project, and the cost. Investors on the site comb through the opportunities and offer deals, or some operations have preset parameters.
Interest rates are typically higher, but the terms can be very flexible. Often these investors can get the cash out quickly, which is essential in a hot market.
Depending on the contract, there may be little to no down payment. For family and friend loans, that is not uncommon, but the peer-to-peer ones usually require some down.
Hard money is a blend of traditional financing and private funds. A hard money lending company collects funds from a group of investors. The borrower will have to meet some standards, and the process will go through a review. The investors will want some level of security, which can come in the form of a hefty down payment.