Finding a bank that is ready to offer you financing at good rates is vital if you are trying to make it as a real estate investor. Obtaining good, long-term financing is something close to a law for real estate investment and financing.
It is very expensive to use hard money loans or even private loans (if you keep them on the property for a long time). Moreover, leverage is among the key benefits of investing in a real estate instead of any other investment. Using all cash is also generally not the most attractive option, but if you wish to keep things slow and steady and take a more conservative approach, it might be the right option for you.
Look for Banks to Refinance the Property
The first thing you should do is get all your ducks in a row before you leap. If you have a bad credit score, you could consider looking for someone who has a good credit score and is willing to partner up with you. But a better approach is generally to look for ways to clean up your credit. Pay off your highest interest debt first and work your way down. Make sure to catch up any arrearages and consider seeking the advice of a credit counselor.
It’s also essential to make sure that all your accounting is in order and are not in a jumbled-up mess. If your accounting is messy, it will further decrease the chances of getting a loan from the bank.
Once you have cleared everything on your part, these are the things you will want to discuss with your lender before you finalize the deal.
- Interest Rate: It is always best to have a lower interest rate.
- Loan to Value: This is what percentage of the purchase price or appraisal value the bank will lend at. The higher is usually better unless you’re being conservative.
- Amortization Rate: This is how long the loan will be paid over. Normally it is better to have a 30-year amortization rather than 20 or 15 (if possible) as it will improve the cash flow.
- Term: the term is the duration after which you will need a renew the loan. Some other fees will come along with it. The term usually goes from three to 10 years, and it’s usually better to be longer.
- Prepayment Penalty: If you pay the loan off early, prepayment penalties force you to either pay points (each point is 1 percent of the loan) or yield maintenance. All else being equal, you would like to skip these.
- Seasoning Period (for Refinances): The seasoning period is the duration the bank requires you own a property before they will lend on the appraised value instead of the amount of cash (purchase price and rehab cost) you put into a house. These range from the moment the property is rehabilitated and leased for up to two years before it starts operating. You need to refinance at the appraised value while you are using the BRRRR plan. So the quicker the seasoning period, the better.
Finding the Right bank for your Real estate business.
Your best shot at finding the best long-term financing rates is with the Fannie Mae program. However, the catch here is that you can only get ten loans with them. After that, your best bet are community banks.
Check out different local networking events aimed at the real estate industry and search for the banks who market there. Normally, these are all the banks that are ready to assist investors. You can also find nearby meetups, especially your local REIAs (Real Estate Investor’s Association).
Referrals are probably the easiest way to find just about anything or anyone in the real estate world. You should attend such or find other active real estate investors in your field. It will not only make you aware of what’s happening in the real estate industry, but you will also be able to seek out referrals. Here you can ask people about the best banks as per their experiences. And if they lent to them, they are much more likely to lend to you.
It might be tiring to get financing, but it is essential that you deal with the right bank.