Different Kinds of Real Estate Loans and When To Use Them

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Different Kinds of Real Estate Loans and When To Use Them

Understanding the different kinds of real estate loans and when to use them is the best way to find the appropriate financing. After all, there are numerous loan options to choose from, and knowing which type will help you achieve your goals is integral to any successful real estate venture. So take a moment to scan our overview—it might just help you find the type of financing you’ve been looking for.

Asset-Based Loans

Asset-based loans are forms of financing that are best for people with diverse portfolios of assets who are interested in real estate, business, and property investments. Essentially, this type of loan provides borrowers with the backing they need to get their investment properties up and running with the stipulation that they put their assets up as collaterals for the loan. These assets can include anything from liquid funds to inventory or other investment properties.

Additionally, the approval process for asset-based lending is far less strenuous than that of more traditional loans. So this kind of financing option is most appealing to people who need funding quickly to make a profit.

Conventional Mortgage Loans

Conventional mortgages are the most common types of real estate loans, and they’re often affiliated with larger financial institutions such as banks. Getting approval for this kind of backing can be a bit rigorous, as lenders will evaluate your financial history and creditworthiness—among other things—to determine if you fit the criteria for approval.

Just as well, once you’re approved, you’ll typically be required to pay a hefty down payment. However, interest rates are generally much lower and more manageable with conventional loans. So conventional mortgages are best for people looking to purchase properties and pay on them long-term. They’re typically used for investment properties that can increase in value and make a profit over a longer period of time, such as single-family dwellings or multifamily units.

Hard Money Loans

To truly understand the different types of real estate loans and when to use them, it’s prudent to learn about the less common ones, such as hard money loans. This type of funding comes from private lenders who have the means to finance your real estate ventures without the help of a major institution. The approval process for hard money loans is far less strenuous. It’s up to the lender to decide whether or not they’re able to take you on as a borrower. And instead of using your assets, hard money lenders will often ask that you put your desired investment property up for collateral.

Just as well, this type of financing often comes with higher interest rates that will continue to accrue over time. So hard money loans are best for people looking to get funding and turn a profit as quickly as possible, such as house-flippers.

No matter what you’re trying to achieve with a real estate loan, knowing which is the most appropriate choice can help you reach your goals. And hopefully, we were able to shed some light on some of the unique financing options available so that you can make the best selection for your investment.