What Type Of Loan Is Best For Your Real Estate Investment Project
One of the factors to consider when investing in Real Estate is the funds you will need for your fix-and-flip or property rehab project or where to get the money to start building on your real estate portfolio. An option is to source your project funding from one of the many financial institutions in your area. With your project in mind, you can choose which of the different types of real estate loans available in Houston gives the most benefit.
Traditional banks, hard money lenders, or financing firms offer different lending products that may suit your needs. We have curated a list of real estate loan programs to help you make an informed decision for your real estate project.
Real Estate Loans In Houston For The Real Estate Investor
1. Conventional Bank Mortgages
Traditional banks and private financial companies offer conventional bank mortgages. These private institutions have relatively strict national policies that govern their mortgage products. Applying for a loan with them means proving an overwhelming financial capability. Buying new or factory-made homes is preferred because of strict property requirements. Down Payment requirements are flexible depending on your Credit Score and Debt Service Ratio.
Conventional Mortgages Advantages
- Down Payment as low as 3%
- Loan rates can be adjustable or fixed until loan maturity
- Loan term of up to a maximum of 30 years
- Debt-to-Service Ratio as high as 45%
- Mortgage insurance is not required with an LTV of 80% or more
Conventional Mortgages Disadvantages
- Lenders require Mortgage Insurance if your down payment is less than 20%
- Property must meet or pass all government regulations and requirements
- Minimum Credit Score to qualify is 620
Why It’s For You
A Conventional mortgage benefits you most if you have a good to exceptional credit score and are looking for a primary home, a vacation home, or investment properties.
2. FHA Loans
These mortgages are issued and insured through the Federal Housing Administration. FHA insurance allows lenders flexibility in approving mortgage applications even if they use their evaluation guidelines. FHA-backed loans also adhere to lending limits based on location and type of property. These loans allow borrowers with low credit scores of 500. The downpayment you need to shell out depends on your Credit Score.
FHA Loans Advantages
- Downpayment is a minimum of 3.5% of the property value
- Allows financing of Mobile Homes and Factory Built Homes
FHA Loans Disadvantages
- Mortgage Insurance Premium of 1.75% of the loan amount and annual insurance are required
- Limited to finance primary residences that meet building guidelines set by appropriate government agencies.
Why It’s For You
FHA Loans are ideal for first-time buyers, low to middle-income households, and borrowers with low credit scores and limited available funds. You should consider an FHA Loan if you are a first-time buyer with a credit score of 500.
3. VA Loans
VA Loans are mortgages issued by private lenders backed by the US Department of Veteran Affairs. These loans make the process of homeownership easier for active, veteran members of the military or their families. You can utilize VA Loans for different purposes, including home repairs and improvement, construction, primary home purchase, and refinancing an existing loan. The Department of Veteran Affairs allows lenders to qualify borrowers using their established credit standards.
VA Loans Advantages
- One Hundred percent financing of the property
- Mortgage Insurance is not required
- Only minimal closing costs or a maximum of 1% of the amount you borrow
- Loan amount depends on your income
VA Loans Disadvantages
- Submission of Certificate of Eligibility from the Department of Veteran Affairs is mandatory
- A borrower must meet credit standards set by private lenders
- The property must meet government standards in safety and building code qualifications
- A funding fee of 3.6% of your loan helps fund the DVA program.
Why It’s For You
VA Loans serve our Veterans, Military Personnel, and their families so long as they meet the minimum service qualifications. You should be in active service for at least 181 consecutive days in peacetime or 90 days in wartime. A good choice among Real Estate Rehab Loans Available in Houston is a VA Loan if you serve or have served in the US Armed Forces.
4. USDA Loans
This US Department of Agriculture loan program is known as USDA Loans. The loan facility provides mortgages for single-family homes to families or borrowers in rural areas through private financing companies. These loans favor borrowers in the low to moderate-income brackets. However, institutional lenders in the program prioritize borrowers with favorable financial standing and good credit scores. To compensate, the USDA offers direct loans to borrowers who do not meet income requirements but are still deemed qualified. You can check your eligibility on the USDA website.
USDA Loans Advantages
- Loan Terms of up to 33 years.
- Lower interest rates compared to other loan programs
- No Downpayment is required
- Interest rates can go as low as 1%
- $40,000.00 Home Improvement loan is available
USDA Loans Disadvantages
- Total Debt Service Ratio should not exceed 41%
- The loan program is not available to all borrowers
- For acquisition of primary homes only
Why It’s For You
USDA Loans fit the mortgage needs of borrowers who live in or are planning to move to rural areas in the country. By design, the loan program is ideal for families in the lower to moderate income brackets acquiring primary homes in the designated areas. You can also avail of a USDA Direct Loan if your income does not qualify with USDA partner lenders or under the different types of Real Estate Loans available in Houston.
5. Hard Money Loans
Hard money loans are Real Estate mortgage programs popular with real estate investors. Unlike conventional mortgages that prioritize the evaluation of your financial capacities, hard money loans are based more on the property. Thus, they are also known as asset-based loans and focus on the future value of your property. Hard Money loans are helpful for rehabbers and flippers because they can buy properties in disrepair that they fix and then sell for a profit. Real estate investors prefer hard money loans when they buy neglected properties and rehab them to build on their rental portfolio.
Hard Money Loans Advantages
- Accepts distressed real estate properties
- Accepts loan applications with low credit scores or low income
- Evaluates loan amount based on the future value of the property
- Loan release in as fast as 15 days
- Flexible terms
Hard Money Disadvantages
- Relatively high-interest rates
- Processing costs can be higher than conventional mortgages
- Some loan programs are short term
Why It’s For You
Fast decisions and quick release of funds give Real estate investors an advantage in closing real estate deals they see as good investments. Hard Money Loans are in your favor if you are involved in house-flipping or a rehabber building on your rental portfolio. Hard Money Loans are the go-to loans in this industry segment because of their fast turn-around-time from loan approval to fund release.
We recommend you do more research about the pros and cons of hard money, the hard money lending process, and applying for a loan with low credit score.
The Best Choice For Your Investment Project
Many finance companies offer different types of Real Estate Loans available in Houston. Your financial capacity, credit score, location, and loan purpose determine what loan program fits your project best. Furthermore, a lender who understands your needs as a real estate investor can give you better insights into your whole project. If you are into fix-a-flipping properties or want to add more to your portfolio, a hard money loan suits your financing needs very well. Hard Money Loans offer fast processing and quick loan release giving you an advantage over other buyers.
For funding assistance on your real estate project or advice on related investment issues, you will always be welcome at GL&L Holdings. Give us a call at 832-770-9415 or email us at info@gllholdings.com.
