5 Types of Real Estate Loans

Let’s talk about the 5 most common types of Real Estate Loans for most deals.

Even though you may not personally use each one of these types of real estate loans in your career, they’re important to know because you can never have too many loan options available.

Let’s do a quick breakdown of each:

Conventional Loan

• What most homeowners use to buy a single home
• Takes information like credit score, assets, income, and debt into account when looking at the borrower
• The borrower typically needs to put a down payment of 10% to 25% of the purchase price
• Less risk with a conventional loan because of low-interest rates but not ideal to purchase multiple properties with

Private Lender 

• Private lenders are entities that loan money to individuals or businesses but are not tied to any bank or credit union. A private lender could be an individual or it could be an entire company
• Private lenders tend to have faster approval times than banks or credit unions, thanks to streamlined or informal application processes
• Private lenders may also be more willing to work with people who have bad credit. Many online private lenders have minimum credit score requirements in the bad credit range. And individuals may not care all that much what your credit score is

Hard Money Loan

• Usually, hard money loans are used when a property will need a lot of fixing
• Hard money loans do not come from banks; they usually come from private investors or individuals
• Requirements are less regulated, so they can be secured quickly since lenders usually agree to the loan based on the value of the property, not the credit score of the borrower
• Ideal for property flippers or investors, but the risk can be high since the interest rates are much higher than other types of loans

Seller Financing

• Allows sellers to move a home faster and get a sizable return on the investment.
• Buyers can benefit from less stringent qualifying and down payment requirements, more flexible interest rates, and better loan terms on a home that otherwise might be out of their reach.
• These loans are often short term—for example, amortized over 30 years but with a balloon payment due in five years. The theory is that, within a few years, the home will have gained enough in value or the buyers’ financial situation will have improved enough that they can refinance with a traditional lender.

Blanket Loan

• Blanket loans are used to fund more than one property at once 
• This is also used on land that will be split up later to be sold for development
• A popular type of loan for builders and developers instead of securing individual loans for each plot of land they want to build on
• Blanket loans allow the borrower to sell individual pieces of land

Conclusion

So those are just a few of the most common types of real estate loans that every investor should be aware of.

Knowing how each one works is crucial to your success as an investor in the long run, so definitely do your research.

If you need a term sheet and pre-approval letter for an active deal that needs funding, please fill out our Real Estate Funding Form. It takes less than 5 minutes to complete with no credit pull.