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Types of Commercial Loans It’s been said that a perfect investment property requires the perfect financing solution. So with this perfect financing, one can purchase the investment property that will help generate steady income while you are paying the low rates and favorable terms of your loan provider. When you want to borrow money for real estate investments, there are benefits as well as disadvantages. So whether you would go to a traditional institution like a bank or an alternative solution like a private lender, the ability to borrow rests on the potential property income and a borrower’s credit worthiness. The potential for making money is great. It only needs factoring all the costs into the deal and covering them with a nice profit so that the risks are justified. In a traditional bank convention however, their guideline is to lower a borrower’s risk of default, and therefore they can offer the lowest mortgage rates and extends long-term loan on the market. When you loan in the bank, some other requirements that you need to comply with are a rigid down payment, income verifications and a good credit standing. With bank loans, however, it may take time for your loan to be approved so it can affect your deal with the property owner.
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It is different with private financiers because they also have interest on property investment unlike banks which are merely interested in monetary interest rates since there are not into the real estate trade. With private lenders however, a lender must show the property’s income potential and not so much on the borrower’s credit worthiness. The property is the chief interest of private lenders and this is the reason why, in order for the borrower to get the full amount of loan, he sometimes has to cross-collateralize because this depends on loan-to-value ratio. Loans traditionally come with higher interest rates, a high return on investment is usually expected, and most private loans are short term. But they do thrive well because they set no lending requirements where the two parties can come to their own terms. Funding can be secured extremely quick, loan qualification process is often less complex and time-consuming, and you also spend less money on fees and closing cost associated with bank loans.
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Another way to get financing is through transaction function which is a specialty lending niche that is becoming popular in the fix and flip industry. A borrower using transaction funding is someone in the fix and flip business where in the purchases cheap homes and using the property’s poor condition renovates them until they reach their highest potential market value. These loans are short termed and have large fees.