No matter if you’re just starting out or an experienced real estate investor, securing a loan is an essential step in the process. Knowing how to navigate different types of real estate loans can help you make informed decisions and secure the financing necessary for success.
One of the most prevalent commercial real estate loans are conventional bank loans. These can be tailored according to each deal’s specifics and borrower profile.
Commercial real estate (CRE) loans
Commercial real estate (CRE) loans are financing solutions that enable businesses to purchase, renovate or develop commercial property. They’re usually provided to business entities like corporations, developers, partnerships, funds or trusts.
These loans can assist businesses in financing a range of properties, such as office buildings, multifamily apartments, retail stores and mixed-use establishments.
Loan terms typically range from five years to twenty, with an amortization period that often exceeds the loan term. In some cases, borrowers may need to make a “balloon” payment consisting of any remaining balance on the loan after its amortization period has elapsed.
CRE loan approval can be a lengthy and intricate process that necessitates extensive documentation and an excellent credit score. Furthermore, many factors must be taken into account during both application and approval stages to guarantee successful outcomes.
Hard money loans
Hard money loans are short-term financing solutions for real estate investments. They’re underwritten differently and typically have shorter terms than mortgages or other types of financing.
Hard money loans tend to have higher interest rates than other forms of real estate loans. If your credit score is good and you feel comfortable taking risks associated with investing in property, hard money loans could be the perfect fit for you.
Investors looking to finance renovations on an existing property, flip properties or build a new home can benefit from these loans. Furthermore, those with multiple rental properties and needing extra capital may find these loans helpful in expanding their portfolios.
Bridge loans are short-term financing solutions that enable home buyers and investors to purchase a new property without needing to sell their current one first. They’re especially helpful during times of rapid market shifts or sudden housing transitions, such as when families relocate for employment or must move for time-sensitive reasons.
A bridge loan also enables homeowners to make contingency-free purchase offers in a competitive seller’s market, which could help them close deals faster. This is especially helpful if your existing house is listed in an active area and you’re having difficulty negotiating a sale contingency into your offer.
Conventional bank loans
Conventional bank loans are the most commonly used type of commercial real estate financing. They act as a primary lien against the financed property and can be used for acquisition, development or refinancing an existing building.
The loan process begins when borrowers meet with a lender to explore their mortgage options. They usually get pre-approved for an amount and rate before beginning formal application.
It can seem intimidating, but with the right information it should be a relatively quick and painless procedure. Start by clearing up any credit issues that are holding you back, saving for a down payment, and working to increase your monthly income.
Real estate investors looking to purchase income-producing properties should consider owner-occupied loans. These types of loans are easier to secure and typically provide lower interest rates than those for investment properties.
One requirement of these loans is that you must occupy the property for at least a year to qualify. Furthermore, if you decide to rent out the property after purchase, make sure your lender knows your intentions before closing on it.
Lenders often prefer owner-occupied loans for business owners, as these borrowers tend to make their monthly mortgage payments and build equity through property value appreciation more quickly than investors do. Furthermore, owner-occupied borrowers are less likely to default on their loan than investors are.