How difficult is it to finance investment properties now?
One thing that either holds investors back from their financial goals and ideal lifestyle is the perception of how easy or hard it is to finance properties.
Some have the belief that it is too difficult and time consuming and don’t take advantage of the leverage available to minimize risk and scale faster. Others aren’t prepared for how challenging some types of lending and banks can be. That can also lead to frustration. So, what’s the real deal today?
The Revolving Credit Market
Access to credit and mortgages in particular is a revolving market. Changing perceptions of risk and liquidity influence ongoing changes in underwriting and qualification criteria, as well as interest rates.
The market tightens and loosens in a revolving way. Often in line with the greater economy, but not always. So, borrowers can often expect it to be harder to get a mortgage in a recession or depression than in an upward bull run when asset values are growing faster.
Of course, there are exceptions to this, and monetary policy and the way the Fed tests new forms of stimulus and control can alter this as well.
Recent Changes To The Mortgage Lending Marketplace
In general, the mortgage market had been loosening up again in the run up to 2020. More alternative income doc loan programs, and loan down payment options were available.
The COVID-19 pandemic changed that in some cases. Just a couple of weeks into lockdown Wells Fargo announced it was ending home equity loans. At the same time Chase announced a serious hike in loan qualifications to a minimum credit score of over 700 and at least a 20% down payment.
However, this didn’t seem to stop retail borrowers accessing low and no down payment loans with low credit scores through VA, FHA and USDA home loan programs.
Retail Mortgages Vs. Investor Loans
It is very important for real estate investors to differentiate between retail loans for average home buyers who will occupy property, versus those for investors and business purpose loans.
Prior to 2008 the market seemed to heavily favor retail homeowners. They were seen as lower risk, as it was assumed they would do whatever possible to hold onto those homes in a crisis. The foreclosure crisis revealed that it was much harder to foreclose on homeowners and owner occupants that investment property. That changed the risk equation.
Since then, lenders have favored loaning to investors. Borrowers are much more likely to be able to generate cash flow to support that loan or liquidate the property to pay off the debt. There are far less regulations.
So, just because retail loans are harder to come by in some phases of the cycle doesn’t mean there isn’t plenty of capital and accessible credit for investors.
Just keep these differences in mind when it comes to your exit strategies. For example, if you are flipping houses, how will the current market impact your end buyers’ ability to finance this deal, or change the viable buyer pool?
Funding For Investment Property Loans
Solvemyloan.com specializes in real estate loans for investors. This is asset based lending, with no personal income verification, and common sense underwriting. It is investor-centric lending created by professional private money investors who understand the challenges and needs of those on the front lines.
Whether you are flipping, redeveloping, or optimizing an income property portfolio, financing may still be a lot easier to secure than you think. Check out our loan options today...