Home equity line of credit, hard money or investor loan?

In this post we will cover the explanation of the 3 different loans that we are looking at and how we are planning to use them.

Home Equity Lines of Credit

Home Equity Loans are also known as a heloc. You will need to go to a mortgage broker for this type of loan. This is a loan that is secured by the equity in a house that you own. Equity is the difference in how much money you owe on a house and what it is worth. A heloc will typically be a second mortage and will work like a credit card. You only pay interest on the balance and you will have a card or a checkbook to use the money. There is usually not a pre-payment penalty.

Hard Money Loans

The term hard money loan comes from the fact that this is money that a typical bank or mortgage company will not loan you, hence this money is hard to get. If you know how to find a hard money lender or a private money lender it is actually pretty easy. These loans are expensive. 4-8% to start the loan and somewhere around 12-15% per month. Hard money is geared towards the investor. They usually will not loan you more than 70% of the value of the house, but they can usually fund in a week and only care about the value of the property. They do not care if you have no credit or bad credit because they will make their money if you default by selling the property.

Cash out refinance

If you have equity in a property you own, you can do a Cash out Refinance to pull that money out. This is a great loan, because you can refinance to take advantage of better rates and still pull out the equity to use for your investments. Some banks will even lend you more than what your property is worth, an example of this is 125% Home Loans.

Investor Loan Programs

Most banks and mortage companies have some type of an investor loan. These are also called non owner occupied loans ( or NOO loans ). Investor loans are just like a normal mortage, but they are based on stricter guidelines because if it is not the house you are living in, they think it will be easier for you to default on your loan and go in to foreclosure. Banks make money of off you paying your payments not by owning property. You will need pretty good credit, reserve cash in the bank and they are usually not 100% financing, which means you will have to bring a down payment to the table (5-10%). The closing time on this loan will be around 30 days.

These are definitely not the only loans for investors out there, but they are the most common and they are ones that we are planning to use to get started. There are hundreds if not thousands of different loan programs under each of the 3 categories and each company is different, so you really need to do your homework and shop different mortgage companies.

I will explain how we are going to use these loans in our next post.