Funding real estate transactions requires a lot of cash that you might not have. Luckily, there are various real estate financing methods you can use.
Traditional financing involves a bank or mortgage lender, but these options can have high interest rates and stricter requirements for approval.
To get the best real estate financing deals and rates in Noblesville, Indiana, you need to know about the different financing options.
Cash-Out Refinance
A cash-out refinance in real estate involves tapping into your home's equity.
A cash-out refinance offers favorable interest terms and the interest is tax-deductible. It also provides you with immediate capital as a Noblesville, Indiana real estate investor.
One of the main risks of this type of financing is that it will reset your mortgage term. You could potentially start a new 30-year cycle and increase your loan-to-value ratio.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) doesn't involve paying off your original mortgage. You can borrow against up to 80% of your home's value.
HELOCs usually involve a draw period, lasting around 10 years with a 15-year repayment period. Like a cash-out refinance, the interest accrued is tax-deductible up to $100,000.
HELOCs are best for financing repairs, rental property maintenance, and overall improvements for your rental property. You likely won't be able to purchase a full property with a HELOC, but it can help you spruce up your property to sell.
Personal Loan
A traditional mortgage loan might not be in the cards for you, but a personal loan could be. While this type of financing doesn't come with tax advantages, you don't need to pledge your house or have any collateral.
Personal loans have shorter repayment periods, ranging from five to seven years. This is beneficial if you want to pay significantly less interest over time.
A personal loan is an effective method for financing real estate purchases, but you need to have excellent credit to avoid a high-interest rate.
You can also use a personal loan to attract tenants to your property and encourage lease renewals through upgrades.
Hard Money Loan
Terms of hard money loans vary, but there are similar characteristics. The approval odds for these loans are higher than those from traditional lenders. You might not need to show your credit score or verify your income.
The downside to hard money loans is that they have higher interest rates because the loan terms are shorter.
Hard money lenders have a deep understanding of the real estate investment process. They will determine your loan terms through the scope of work and after-repair value (ARV).
Real Estate Financing: Understanding the Different Types
The best way to approach real estate financing is to learn the different options. Each will have its own deals and rates that can benefit you.
After buying real estate, it's important to make your rental business a success. If you don't have experience as a landlord, you can hire a rental management company in Noblesville, Indiana.
PMI Indianapolis is a full-service rental property management business that helps investors maximize profitability. With over 20 years of experience, we have what it takes to help you with financing and other services.
Contact us today to discuss your real estate financing options.
