Investment Property Loan: 3 Options

An investment property loan is any loan secured for a piece of real estate the owner does not intend to live in full time but either rent out or hold for a period of time until the value appreciates. Often, people seek investment property loans when they intend on "flipping a house" through a series of immediate repairs. Other loans may be longer-term, particularly if the owner will be renting, leasing or utilizing the property for at least some months out of the year. Since investment properties are not a necessity but an investment, it is even more essential to get a low-cost loan for the investment to pay off.

Second Mortgage

A second mortgage is exactly what it sounds like: this is an additional mortgage on the property you already own. A second mortgage is financed against the current equity you have in your home. While first, or initial, mortgages are often available through very traditional bank structures, second mortgages are seen as a riskier lending practice and may be less available. Seeking a company that specializes in property loans or second mortgages is the best chance of securing this. If you enter bankruptcy, your first mortgage will always be paid off before the subsequent. Be prepared for a mortgage rate slightly higher than your initial mortgage but not as high as if you were not placing collateral.

Hard Money Loan

A hard money loan may be a second mortgage, but it is not necessarily secured against a home or real estate. A hard money loan is simply a version of a secured loan. Secured loans will save you money over unsecured loans, which are received without collateral. To gain a hard money loan, you may leverage real estate, automobiles, a business or other hard assets. More liquid assets typically get a higher loan to value. However, the largest asset most people own is real estate, which is not highly liquid. The asset may be seized in case of default. Be prepared for a slightly higher interest rate as these types of loans are often given to those who do not financially qualify for a straight second mortgage.

Bridge Loan

A bridge loan is secured for a temporary period of time until more permanent financing can be obtained. If you intend on renting out a house, a bridge loan can assist you in buying the property and fixing it up for renters. Then, once you have an idea of the revenue stream you will gain on the property, you can seek long-term financing. Bridge loans typically have the highest interest rates of the options listed here. They may be secured against an asset to reduce the interest rates, but their shorter life span will cost you dearly. A bridge loan should only be pursued when you are not willing or not able to commit to long-term financing for your investment property. If, however, you know you can get a better interest rate after saving for a slightly larger down payment, a bridge loan may save you money.