How Do Home Investors Purchase Homes?

Most home investors purchase homes with the plan to rent the home and sell for a profit somewhere down the road. With recent improvements in the economy and low prices, home investors are jumping into the residential real estate market once again. Although prices are good, the days of easy-and-quick financing are over with a tightened credit market. Today, home investors need preparation and a little creativity to get a loan for an investment property.

Loans and Financing

Home investors need to have a sizable down payment to secure traditional financing. Typically, 20% down is required, but 25% down can garner an even better interest rate. Without a down payment, obtaining a second mortgage on the property may be an option but often an uphill battle. Most lenders are hesitant in doing second loans on investment residential properties. Those who are strong borrowers with a 740+ credit score and reserves in the bank to cover related-investment expenses can score a lower interest rate.

In addition to securing a loan from a bank, some home investors ask for owner financing. This type of arrangement used to make home sellers suspicious of home investors, but it’s more acceptable today due to the number of motivated sellers seeking to get rid of their properties and the recent credit crunch. Owner financing is an option, but the seller has be sold on the amount of money and terms.

Creative Means

Other home investors get creative and think outside of the box to purchase investment homes. Home equity lines of credit, life insurance policies and credit cards are just a few of the creative options. Financing for the purchase of investment properties may also be possible with private loans from sites like LendingClub.com and Prosper.com. These lending sites connect investors with individual private lenders.

Some home investors purchase houses that may have problems or are just difficult to sell. These homes may have electrical problems, water damage or outdated plumbing. Purchasing depressed properties helps selling a home for many homeowners. Homeowners don’t have to work with a realtor, wait months to sell, advertise, complete long repair jobs or prepare the home for open houses. Investors who specialize in foreclosures can often offer a quick sale. This way, those facing a potential foreclosure don’t have to risk having a foreclosure on their record. If a home doesn’t have enough equity, a home investor may be able to short sale the loan.