8 Types Of Real Estate Loans You Must Know

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8 Types Of Real Estate Investments Loans You Must Know

With the numerous loan products available these days, loan types can become a complicated conversation. It can be overwhelming for real estate investors to understand which best meets their financial goals and objectives. 

These terms aren’t legal definitions, so this lack of legal definition means you will come across lenders who define these categories differently.

In an attempt to categorize the different loans, lenders used to applied two criteria: 

  • The length of the loan based on its maturity date.
  • The purpose for which the money will be used.

In this blog post, we will focus on informing you about common types of real estate loans currently available so that you, as a real estate investor, can determine which option is most suitable for investing in today’s market.

 

Table Of Content:

  1. Blanket
  2. Bridge
  3. Construction
  4. Long-term
  5. Fix-and-flip
  6. Purchase
  7. Refinance
  8. Renovation

Investment property financing

  1. Blanket

This type of loan allows borrowers to use one loan to cover the purchase of several investment properties, typically within a concentrated geographic region. With fewer documents and points to pay on closing costs, real estate investors can take advantage of available opportunities quickly and accurately. Real estate investors must typically have a great deal of proven experience and a history of profitability to obtain a blanket loan. 

  1. Bridge

A bridge loan is a type of short-term loan (6 months – 1 year) that real estate investors often use to purchase a property before they have sold their existing property. This type of loan provides immediate capital that can be used for the acquisition.

You will most commonly need a bridge loan if:

  • You need to close on a real estate purchase quickly.
  • You plan to resell the property soon.

  1. Construction

Construction loans fall into two types:

  • New construction: This pertains to building from the ground up, either on a single property or a commercial/residential development. Private lenders may also want to know nuances on whether the land is raw, has utility access ready to go, etc. New construction is much riskier and more speculative to a lender than existing construction. 
  • Existing construction: Commonly used to build additions onto an existing structure or extensive repairs requiring a builder. Generally, you are looking for an existing construction loan if your project requires a builder with permitted floor plans and specifications. 

  1. Long-term

If you are a solid prospect on the 3 C’s, you may be able to find a lender willing to provide a long-term loan from day one. Like bridge loans, you will nearly always find long-term loans further defined by how you plan to use the money.

 

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  1. Fix-and-flip

These short-term loans are ideal for real estate investment opportunities such as purchasing, renovating, and reselling a single property. Fix and flip loans offer investors the opportunity to acquire financing quickly, often in as little as one week. This streamlined process allows real estate investors to move promptly on desirable properties that are available at low prices and will enable them to create impressive ROIs or sell at top dollar when the renovations are complete.

  1. Purchase

These loans are like fixed-rate and adjustable-rate mortgages. Purchase loans may be bridge or longer-term, but the money is used solely to purchase the property.

 

Real estate loans

  1. Refinance

By trading an existing loan with a new loan, real estate investors can take advantage of better terms and lower interest rates. Refinancing a real estate loan can reduce an investor’s monthly payment, free up money for other investments, or take cash out of your equity.

  1. Renovation

This loan allows real estate investors to combine purchase and repair costs into one loan, leaning on current market values while leveraging future potential. This makes it easier to manage expenses, execute extensive renovations, and realize greater profits and equity. Renovation loans are a niche product provided by a select group of rehab lenders.

 

Conclusion

While each loan type has its terms and conditions, they can be helpful in the right situation. However, if you still need to decide which loan is right for you, our team at RE Investor News can help. We have a wealth of experience in the industry across New York, Texas, Florida, Carolina, and beyond. Contact us a call today!

 

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