When you’re ready to invest in an Orlando property, you’ll have to decide how to pay for it.
Cash is always an option, but rarely a good one. Unless you’re really desperate to avoid interest rates or you have a large sum of cash that you’re looking to park somewhere, it’s almost always better to leverage other people’s month for your purchase.
When it comes to financing your Orlando investment property, you have several options to consider. Each comes with its own set of advantages and requirements. The best options for you will depend on a number of things, namely your current financial situation, the risk you carry with you as a borrower, and the type of property you’re buying.
Let’s explore the most popular options when it comes to financing Orlando investment properties.
Conventional Loans for Investment Property
Conventional loans are the most common type of financing for investment properties. It’s what most people know as a mortgage. This is the first stopping point for home buyers as well as real estate investors. These loans are not backed by the government and typically require a higher down payment (usually 20% or more) and a strong credit score. You’ll get an offer from a bank, credit union, or other financial institution. They will offer you a specific amount based on your credit and financial standing.
There are some good reasons to pursue conventional lending. Usually, you’ll get a competitive interest rate, especially if you can demonstrate you’re a decent credit risk. You’ll also have flexible terms to choose from. Most conventional loans are 30 years, but you can also look for a 20-year or a 15-year loan.
This type of loan does require a higher down payment and there’s strict qualification criteria involved. Be prepared for that.
FHA Loans for Some Property Types
Federal Housing Administration (FHA) loans are government-backed loans designed for low-to-moderate-income borrowers. While FHA loans are primarily for owner-occupied properties, you can finance a multi-unit property (up to four units) with an FHA loan as long as you live in one of the units.
This won’t work for everyone. But, if you’re buying a duplex and you’re willing to live in one of the units while renting out the other, it’s a great way to get started as an investor, and you can take advantage of FHA financing. You’ll pay a lower down payment, sometimes as low as 3.5%. It’s easier to qualify because the government backs these loans. And you’ll be financing the purchase of your own home as well as an investment. One thing to remember about FHA loans is that mortgage insurance will be required. That will add to your expenses and cut into your cash flow.
Considering Hard Money Loans
Hard money loans are short-term loans provided by private lenders. These loans are asset-based, meaning the property itself serves as collateral. You can get approved quickly for these, and the credit requirements are far less strict. The drawback is often the higher interest rates you’ll pay. These are also short-term loans, meaning you’ll have to be prepared to either sell the property or refinance it before the loan comes due. This could be in as little as a year or as many as five years.
Portfolio Loans
Portfolio loans are offered by banks and held in their own portfolios rather than being sold on the secondary market. These loans are tailored to investors who may not meet the standard criteria for conventional loans. You’ll find flexible underwriting standards and easier approval, especially if you’re investing in multiple properties. However, there are also higher interest rates, and these types of loans can be more difficult to find.
Home Equity Loans and HELOCs
If you already own a property with significant equity, you can leverage that equity to finance your next Orlando investment property. Home equity loans and home equity lines of credit (HELOCs) allow you to borrow against the equity in your existing home. You’ll receive a lower interest rate compared to many other loan types, and you can get a lot of flexibility in how you use the funds. There’s a bit of risk involved, though. The primary residence that’s used for collateral will be foreclosed on if you default on the loan. You’ll also need to have significant equity in an existing property.
Strategies for Securing Investment Property Financing
Now that you know the various financing options, here are some strategies to improve your chances of securing the best financing for your investment property in Orlando:
- Improve Your Credit Score
A higher credit score can help you qualify for better loan terms and lower interest rates. Pay down existing debts, avoid new credit inquiries, and ensure your credit reports are accurate.
- Save for a Larger Down Payment
Having a larger down payment reduces the lender’s risk and can improve your loan terms. Aim for at least 20% to secure the most favorable rates.
- Get Pre-Approved
Getting pre-approved for a loan shows sellers that you’re a serious buyer and can streamline the buying process. It also gives you a clear understanding of how much you can afford.
- Work with an Experienced Real Estate Agent
An experienced real estate agent specializing in Orlando investment properties can provide valuable insights and help you find the best financing options.
- Consider Partnering with Other Investors
Pooling resources with other investors can help you come up with a larger down payment and share the financial burden. Just make sure to outline clear terms and agreements.
We would love to talk to you more about the property you’re thinking about buying and the investment goals you have moving forward. Let’s talk about how to get you the money you need. As Orlando property managers, we’re here to share our resources, tools, and networks of professionals.
We invite you to contact us at Park Avenue Property Management. We work with landlords and investors with properties in Celebration, Orlando, Lake Buena Vista, Kissimmee, Maitland, Altamonte Springs, West Palm Beach, Tampa Bay, and throughout Central Florida.
